by Suzanne Mathews

Created on: August 30, 2009   Last Updated: May 23, 2012

Preparing your first business tax return can be scary and sometimes frustrating. Often the confusion starts with understanding which business tax return and/or forms to use. Knowing how your business is structured will help determine the tax forms required. There are five different business structures sole proprietor, partnership, S corporation, C corporation, and limited liability company or (LLC); each require different types of forms.

The most common business structure of the five is sole proprietor. A sole proprietor business is an entity not incorporated and owned by a sole person otherwise known as a self employed person. Generally this business structure is used by small or home based businesses. Sole proprietor business owner's file a business tax return using the "Profit or Loss from Business" form, or form Schedule C or Schedule C-EZ. Schedule C is used if the business had inventory and income over $5000.00 otherwise the business owner would use a Schedule C-EZ. The schedule C or C-EZ is rather simple to complete. Maintaining the business activities or bookkeeping records throughout the year is essential to preparing a business tax return no matter which form the business owner's uses.

All business owners must keep accurate bookkeeping records of their yearly income, cost of goods or inventory, overhead or operating expenses, and equipment. The figures from these records will be applied accordingly to each question on the Schedule C or C-EZ. The profit or loss from the schedule C or C-EZ is then transferred to the business owner's personal return form 1040. In addition to the Schedule C or C-EZ a sole proprietor is required to complete a self-employment tax form, known as a Schedule SE. The amount due if any will be transferred to personal return form 1040. Without a doubt, this is a very basic explanation to filing as a sole proprietor; to gain a better understanding filing a Schedule C or C-EZ, it is recommended that sole proprietors or a self employed person should review publication 334 "A Tax Guide for Small Businesses."

Because of the complexity, the last four business structures partnership, S Corporation, C Corporation, and Limited Liability Company (LLC), the business owner should seek additional assistance from a qualified tax preparer or Certified Accountant (CPA) to prepare the business tax return. Moreover, it is common and recommended for the business owner to seek a legal advice from a lawyer who specializes in Corporate Business law when initiating any of these complex business structures. Even with the complexity, to complete the business tax return the business owner must maintain proper bookkeeping records thoughout the year .

To alleviate frustration and possible errors, a business owner must establish the business structure before the first business tax return can be completed. Maintaining and managing proper bookkeeping records throughout the year for any business is essential to completing a tax return. Seek professional advice from a qualified tax preparer, CPA, and/or a corporate business lawyer for complex business structures and tax issues. Once all these crucial elements have been established the business owner will be ready to file their first business tax return.

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