Founder’s Guide to Federal Tax: Everything You Need to Know

As a founder, you’re probably familiar with the saying that there are two certainties in life: death and taxes. While taxes may not be as certain as death, they are certainly inevitable in running a business. As such, it’s important to have a solid understanding of the tax requirements that apply to your business, including the US Federal Tax.

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“Nothing is certain except death and taxes” - Benjamin Franklin

Whether you are a new entrepreneur considering incorporating in Delaware, or an experienced founder running a business in the US, this guide will provide you with the knowledge and tools you need to navigate the complex world of federal tax. We’ll help you understand the nuances of these tax laws in a simple, yet effective manner.

So, sit back, grab a coffee, and get ready to learn everything you need to know about Federal tax.

What is Federal Tax?

The US federal tax is a tax that businesses operating in the United States are required to pay to the federal government based on their profits. It is administered by the Internal Revenue Service (IRS), which is responsible for collecting and enforcing tax laws.

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Federal Tax = Tax on Profits = Income Tax

The federal tax system is complex, with various taxes and regulations that may apply to your business, depending on its structure and revenue.

The tax rate varies depending on the type of business entity, such as a corporation, sole proprietorship, partnership, or limited liability company (LLC), and the amount of taxable income earned. If you are reading this, you are most likely a Corporation (C-Corp) but it’s best you get this doubly checked 🙂 Once you are sure - Read on!

How to File Federal Taxes?

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Honestly, it’s very hard for your self to file the return. You could hire a tax consultant like Zuna & skip the rest of this blog. Just know that the taxes are ~21% on the Profits.

To file federal taxes, corporations must complete and submit a tax return to the IRS. The type of tax return required will depend on your business structure and revenue.

For example, if you are a corporation, you must file a Form 1120, while self-employed individuals must file a Schedule C. S corporations and partnerships must file a tax return, but they don’t pay federal income taxes at the entity level. Instead, the profits and losses of your business are passed through to the owners, who pay taxes on their individual tax returns.

You must also keep accurate and complete records of your income and expenses to support your tax return. The IRS has specific recordkeeping requirements that you must follow, and failure to maintain proper records can result in penalties and fines.

Here are the steps followed (or to be followed) to file your federal taxes:

1. Gather Required Documents and Information: Before you file your federal tax return, you need to gather all the necessary documents and information. This includes your business's financial statements, bank statements, payroll records, and any other relevant documentation such as W-2, 1099, and other income and deduction documents. Zuna can send you a checklist - Just fill this out!

2. Calculate your income:

1. Calculate Gross Income - To calculate income tax for a C Corporation, you need to first calculate the corporation's gross income. This includes all revenue earned by the corporation, including sales, services, and other sources of income.
2. Determine Taxable Income - Once you have calculated gross income, you need to subtract any allowable deductions, such as business expenses, depreciation, and other deductions. The resulting figure is the corporation's taxable income.

3. Determine Tax Liability: The tax liability for a C Corporation is calculated using a progressive tax rate structure. As of 2023, the tax rate for C Corporations is a flat rate of 21%. To calculate the tax liability, multiply the taxable income by the applicable tax rate.

4. Adjust for Tax Credits and Payments: After determining the tax liability, you may be able to reduce the amount of tax owed by applying tax credits or payments. For example, if the corporation made estimated tax payments throughout the year, these payments can be applied to reduce tax liability. Additionally, some tax credits may be available for certain types of business activities or investments.

5. Fill out the relevant form: For instance, Form 1120 is the tax return form for C Corporations. This form will contain your business's financial information, including income, deductions, and credits. You will also need to attach any supporting schedules or forms, such as Schedule D for capital gains and losses and various other disclosures.

6. Pay any taxes owed: If you owe taxes, you will need to make a payment to the IRS. You can do this by including a check with your tax return or by making an electronic payment. If you overpaid your taxes, you can request a refund or apply the overpayment to your next year's taxes.

7. File your tax return: Once you have completed the form, the same is filed with the IRS.

8. Keep Copies of Your Tax Return and Documentation: This will ensure that you have the information you need in case of an audit or any other tax-related issues that may arise.

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The tax deadline for C Corporations is usually April 15th of each year, but it may vary depending on weekends and holidays. It may also change if you have a different fiscal year.PENALTY: 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax! You better file it on time 🙂

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It is important to keep copies of your tax return and all supporting documentation for at least 3 years.

Wrapping It Up

Understanding the tax laws and regulations can be overwhelming. As a founder, your time is very valuable. Hence, you are expected to ONLY have an overview of the taxes! Also, Federal tax is just one of the many regulations that apply to your business! There are a lot of deadlines and requirements for tax season, but don't let that intimidate you.

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As a founder, your focus should be on growing your business and achieving your goals than spending time and energy on planning & filing taxes! Simply being aware of the deadlines and what's required will put you ahead of most startups.

If you need help, Zuna would love to take this headache off your plate. We are a one-stop service provider for your accounting, tax & compliance needs! We can help you across all stages of Federal tax - right from tax planning to tax saving to tax computation and filing - we do it all.

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Non-compliance has always been costlier than compliance!

Contact us to get an instant quote! 🙂

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