Taxes are an unavoidable aspect of life. Whether you’re an individual or a business owner, both entities are required to pay taxes. But the rules and regulations surrounding personal and business taxes can be quite different. While there are some similarities between the two, there are also some critical differences that every taxpayer needs to be aware of.
Understanding the distinctions between personal and business taxes is also essential to ensure that you comply with the tax laws and minimize your tax liabilities. In this article, we will explore the key differences between personal and business taxes, and help you navigate the complexities of the tax system.
The Difference Between Personal And Business Tax Returns
The primary differences between personal and business tax returns include:
Tax Return Forms
Personal tax returns are filed using Form 1040, while business tax returns are filed using various forms depending on the business structure.
The tax rates for personal taxes and business taxes are different. Personal income tax rates range from 10% to 37%, depending on the taxpayer’s income level. Business tax rates are not only based on how much the business makes, but also whether the business is a pass-through entity or a corporation.
Types Of Taxes
Business taxes include income tax, employment tax, and self-employment tax. Personal taxes include property taxes, which are based on the value of real estate, and personal income tax, which is calculated on the individual’s taxable income.
Business taxes have more deductions available than personal taxes. Business owners can deduct expenses related to running their business such as office rent, equipment, and supplies. Personal tax deductions on the other hand, are limited to expenses such as charitable donations, mortgage interest, and state and local taxes.
Different Filing Deadlines
Business taxes have different filing deadlines than personal taxes. Personal tax returns are due on April 15th each year, while business tax returns may have different due dates depending on the business structure and fiscal year.
Do I File My Business Taxes With My Personal Taxes?
As we mentioned above, business taxes and personal taxes are separate and distinct, and each requires a separate tax return. The type of business structure you have will determine the type of tax return you need to file.
For example, if you are a sole proprietor, you will need to file a Schedule C with your personal tax return (Form 1040) to report your business income and deductions. If you have a partnership, you will need to file Form 1065, which is a separate tax return for the partnership. The partnership will report its income and expenses on Form 1065, and the individual partners will receive a Schedule K-1 that reports their share of the partnership’s income, deductions, and credits. The partners will then use this information to report their share of the partnership’s income on their personal tax returns.
Similarly, if you have a corporation, you will need to file a separate tax return using Form 1120. The corporation will report its income and expenses on Form 1120, and the shareholders will receive a Form 1099-DIV or a Schedule K-1 (depending on whether the corporation is an S corporation or a C corporation) that reports their share of the corporation’s income, deductions, and credits. The shareholders will then use this information to report their share of the corporation’s income on their personal tax returns.
It is important to keep your business and personal finances separate and to maintain accurate records of your business income and expenses. Failing to file the correct tax returns or inaccurately reporting your business income and expenses can result in penalties, fines, and interest charges. It is advisable to consult with a qualified tax professional to ensure that you are meeting all of your tax obligations and taking advantage of all available tax benefits.
If you have questions and are looking for an experienced tax professional, our team here at Minton CPA & Associates has been providing tax services to individuals and business owners in the Hampton Roads region for over 30 years. We can assist you with all aspects of tax planning and preparation, from helping you determine the best business structure for your needs to ensuring that you are taking advantage of all available deductions and credits. We can also help you with tax resolution services if you are facing tax problems or IRS audits.
In addition to tax services, we offer a wide range of accounting, bookkeeping, and payroll services to help you manage your business finances more effectively. Our team is committed to providing personalized service and customized solutions that meet your unique needs and goals. Call us today at 757-546-2870.