FILING STATUS
Each year, you should choose the filing status that accurately matches your circumstances. You can choose from one of 5 different filing statuses. Generally, your filing status is based on your marital status on the last day of the year. These filing statuses are as follows:
Single
You can choose this filing status if you’re unmarried, divorced or legally separated.
Married filing jointly
You choose this filing status if you’re married. You can use this filing status even if your spouse passed away during the year.
Married filing separately
You can choose this filing status if you’re married and don’t want to file jointly with your spouse. Note, however, that most couples save money by filing jointly.
Head of household
You can use this filing status if you’re single and you paid more than half of your living expenses for yourself and a qualifying dependent (usually a child or a parent).
Qualifying surviving spouse
You can choose this filing status for the next 2 years if your spouse died during the current tax year, and you have a dependent child.
BUSINESS MODELS
If you plan to operate a small business, it is very important to first consider which business model you would want to choose. This is so because each business model has very different tax implications.
LLC’s
Single member LLCs are considered pass-through entities, which means that the LLC’s profits are passed on to the owner, and reflected on the owners’s 1040 federal tax return, on a Schedule C. This means that the single member LLC owner only has to file one tax return.
A domestic LLC with at least two members is, however, classified as a partnership for federal income tax purposes, and must file a 1065 tax return.
PARTNERSHIPS
Partnerships file an information return to report their income, gains, losses, deductions, credits, etc., by filing a 1065 tax return.
A partnership does not pay tax on its income but "passes through" any profits or losses to its partners. Partners must include partnership items on their tax or information returns.
C CORPORATIONS
Corporations must complete and file Form 1120 to calculate the income subject to the flat corporate rate.
C Corporations are generally subject to double taxation. But what does it mean? Double taxation occurs in two stages. First, the corporation pays income tax on its net profit. Then, shareholders are taxed when those profits are paid to them as dividends. The money is taxed twice – hence the name “double taxation.”
S CORPORATIONS
Setting up your business as an S corporation provides several tax advantages that are not available to owners of C corporations or LLCs.
S corps) are considered “pass-through entities”, which means any deductions, losses, income, credits, and profits pass through directly to shareholders, who report their share of the business’s performance on their own personal tax returns. The tax rate an owner/shareholder pays on S corp profits is determined by their individual income-tax rate
As a pass-through entity, one of the biggest tax advantages of the S corp business structure is that it avoids double-taxation, which means S corps don’t have to pay taxes at the federal level the way C corps do. Instead, S corp profits are only taxed once, on the personal tax returns of individual shareholders.
If the amount of income tax withheld from your salary or pension is not enough, or if you receive income such as interest, dividends, self-employment income, capital gains, prizes and awards, you may have to make estimated tax payments. So if you are in business for yourself, you generally need to make estimated tax payments.
It is very important that you make these estimated tax payments if you expect to owe tax of $1,000 or more when you file your tax returns.
If you don’t pay enough tax through withholding and estimated tax payments, you may have to pay a penalty. You also may have to pay a penalty if your estimated tax payments are late, even if you are due a refund when you file your tax return.
Estimated taxes are due on the following dates:
April 15
June 15
September 15
January 15 of the following year.
FILING FOR AN EXTENSION
If you can't file your federal tax return by the April 15, deadline, you can request an extension. An extension generally gives you until October 15, to file your federal income tax return.
You can request an automatic filing extension using Form 4868. Note, however, that an extension to file is not an extension to pay taxes. If you owe taxes, you should pay them before the due date to avoid potential penalties and interest on the amount owed.