Filing Your First Business Tax Return, Step by Step

What must be settled before I start the first return?

Settle the business's federal tax treatment, first tax year, and accounting method before entering numbers. The legal label on an LLC's formation papers does not by itself tell you which income tax return to file; use Which returns your business files to identify the return and whether a return is required when there was no income. If a disregarded single-member LLC adds an owner, its default classification changes to a partnership from that event (IRS: LLC classification changes).

For an S corporation, check the IRS election acceptance notice and its effective date. Form 2553 is generally due within two months and 15 days after the tax year begins. For a new entity, the first-year effective date is generally the earliest date it had owners, assets, or business activity. An authorized officer signs Form 2553 and the required shareholders consent in Part I. The IRS says to file Form 1120-S only for a year covered by an accepted election; filing Form 2553 alone is not confirmation. If no response arrived, follow up under the Form 2553 instructions. A corporation whose S election takes effect after its first tax year may need a different return for the earlier period; adding an ineligible shareholder can also terminate S status (Form 1120-S instructions).

Choose the year-end and accounting method that the rules allow. A new entity generally adopts its tax year on its first return; a sole proprietor generally follows the owner's existing tax year. An EIN application or extension request does not adopt a tax year. Partnerships and S corporations generally have restricted tax-year choices. Cash accounting generally reports income when received, while accrual accounting generally reports it when earned. Changing the year or method later may require IRS approval or a formal change request (Publication 583; Publication 538).

When is the first return due if the business started partway through the year?

A start date partway through the year does not move the filing deadline to the business's anniversary. A new partnership or corporation may have a short first tax year ending on its chosen or required year-end; its return covers that period, and the deadline runs from that year-end (Publication 538).

These are the general rules in the IRS tax calendar and Form 1120 instructions. A weekend or legal holiday moves the deadline to the next business day. Check the actual filing date for the year and any IRS disaster relief before filing.

If a partnership or corporation needs more time to prepare, file Form 7004 by its original deadline; it generally adds six months to file. A sole proprietor generally requests an extension for Form 1040 instead. Neither extension gives more time to pay tax due (Form 7004 instructions; IRS tax calendar).

What is due in the first year, and in what order?

Reconcile the books while checking payroll and information-return deadlines; those filings may be due before the income tax return. A partnership or S corporation gives owners Schedules K-1 before they file returns reporting those items. A C corporation files Form 1120 separately; shareholders report their own wages and taxable dividends, not undistributed corporate profit (IRS employment tax due dates; IRS: forming a corporation).

The federal income tax return does not replace payroll or information returns. Employers generally file Form 941 each quarter and Forms W-2 after year-end; most also file annual Form 940 for federal unemployment tax. Contractor payments may trigger Form 1099-NEC (IRS employment tax due dates). The exact federal return and no-income filing rules belong in Which returns your business files.

Can I deduct costs from before the business opened?

Some pre-opening costs may be recovered starting when the active business begins. Keep them separate from ordinary costs paid after opening and from assets such as equipment, which follow other rules (Publication 583).

The opening date matters: spending before operations began is not automatically a current operating expense. Record what each payment bought, its date, and the date the business was ready to operate. If the business has not begun active operations, do not assume that the start-up deduction begins merely because the entity was formed (26 U.S.C. § 195).

Which first-year choices are hard to change later?

The first return can establish methods that carry into later years. Review the permitted tax year, cash or accrual method, inventory treatment where relevant, and any LLC classification or S corporation election before filing (Publication 538; Form 2553 instructions).

These rules and change procedures appear in Publication 583, Publication 538, and the Form 1120-S instructions. If an election is missing or unconfirmed, see Late S corporation election relief before treating the entity as an S corporation.

What records do I need to gather?

Gather documents that explain both the numbers and who owns them. The IRS requires records that show business income and expenses; a bank payment alone does not prove that an expense qualifies for a deduction (Publication 583; IRS recordkeeping).

• Formation documents, start date, EIN notice, tax elections and IRS responses, ownership agreement, and each owner's name, address, tax identification number, and share of profits and losses (Form 1065 instructions).
• Business bank and card statements, sales reports, invoices, receipts, and Forms 1099-K, 1099-NEC, or 1099-MISC received. Reconcile gross payments to sales, refunds, fees, and deposits; separate loans and owner contributions from sales, and draws and distributions from expenses (IRS: Form 1099-K).
• Receipts from before opening, with the purpose of each cost and the date active operations began.
• Asset purchase records, dates first used, inventory counts if relevant, and loan balances.
• Payroll records, Forms 941 and W-2, contractor payment records, Forms 1099, and estimated tax payments.
• For a partnership or S corporation, amounts each owner contributed, lent, withdrew, and received. The return may require a balance sheet and owner-specific schedules (Form 1065 instructions; Form 1120-S instructions).

If the books are behind, use Catching up on overdue books before copying unreconciled totals onto a return. For an ongoing recordkeeping decision, see Doing your own books or hiring a bookkeeper.

Can I prepare my own Form 1120-S or Form 1065?

Yes, the IRS instructions let the business prepare and file its own return. The practical test is whether you can reconcile the books and correctly report each owner's share, contributions, distributions, loans, and required schedules—not just enter sales minus expenses (Form 1065 instructions; Form 1120-S instructions).

A partnership return allocates items among partners and supplies each partner's Schedule K-1. An S corporation return supplies each shareholder's Schedule K-1 and must reflect a valid S election. Either return can require balance-sheet and reconciliation schedules depending on its facts; the form instructions list the exceptions. A partnership interest change invokes special allocation rules. If an S shareholder leaves, the corporation can elect to allocate as if its year closed on that date; all affected shareholders must consent, and the statement goes with a timely original or amended Form 1120-S (Form 1065 instructions; Form 1120-S instructions). A return with contributed property, changing ownership, debt, losses, or activity in more than one state requires closer review. For the entity-specific mechanics, see How partnerships are taxed or How S corporations are taxed.

Review the completed return and keep its supporting records whether you prepare it or use a paid preparer. The IRS guidance on choosing a tax professional explains that paid preparers have different qualifications; ask who will prepare and sign the return and how owner schedules will be checked.

Do I have to e-file, or can I mail the return?

If you prepare your own Form 1040 with Schedule C, you may e-file or mail it. Check separate e-file rules for any employment or information returns your business must file (IRS: file your tax return).

A partnership must generally e-file Form 1065 if it is required to file at least 10 returns of any type during the calendar year ending with or within its tax year. An S corporation must generally e-file Form 1120-S if required to file at least 10 returns in that calendar-year period. A C corporation must generally e-file Form 1120 if it or its controlled group in total meets that threshold in that period. For a short first tax year, use the calendar year in which it ends. Count income, employment, excise, and information returns, including Forms W-2, 1099, and 941, when they are required to be filed, not by the tax year they report (IRS: electronic filing regulations).

A partnership with more than 100 direct partners over the tax year must e-file Form 1065 regardless of that general count (IRS: electronic filing regulations). If the business is below the applicable threshold and the form instructions permit it, paper filing is an option; use that return's current mailing instructions. The IRS has hardship waiver and religious exemption procedures when e-filing is required; those have separate conditions (IRS Topic 803). Keep proof that an electronic filing was accepted or that a paper return was timely mailed.

When does a first return usually need a professional?

Get a review before filing when a first-year fact changes tax treatment or requires an election, valuation, or allocation you cannot support. The main signals are an unconfirmed S election, property contributed by an owner, a complex ownership split, multiple states, foreign owners, or a business loss you expect to use personally (Form 1120-S instructions; Form 1065 instructions).

Bring the formation and election records, reconciled books, pre-opening receipts, asset list, payroll filings, and owner transaction history. That lets a preparer test the return against the records rather than reconstruct the year from deposits. If the due date is near, request the applicable extension on time and pay any tax due; the extension does not settle uncertain return positions (Form 7004 instructions).

Example

Illustrative amounts are in US dollars. A partnership with two calendar-year individual owners forms on July 1, opens on September 1, and uses a December 31 year-end. Its first Form 1065 covers the short period ending December 31, with a general due date of March 15 of the next year, adjusted for weekends and holidays.

Between formation and opening, the partnership spent $8,000 on qualifying start-up costs. If all $8,000 meets the start-up rules, it deducts $5,000 when business begins and spreads the remaining $3,000 over 180 months starting in September. For September through December, that is $3,000 ÷ 180 × 4 = about $67 of amortization, for a total first-year start-up deduction of about $5,067. Equipment bought for $4,000 is classified separately. The partners finish the books and Form 1065 before using their Schedules K-1 on their personal returns.

Different for you?

• The business had no income, or you are unsure which return applies: see Which returns your business files.
• Your S election is missing or was not accepted: see Late S corporation election relief.
• Your S corporation owner worked in the business without payroll: see S corporation owner salary.
• You expect to offset wages with a first-year loss: see Business losses.
• Your business is an LLC or corporation in California: see California minimum tax and LLC fee for first-year and state-specific rules.
• A foreign person owns the business: a single-member LLC may need foreign-owned single-member LLC filing; a partnership or multi-member LLC may need foreign-partner withholding; a C corporation may need foreign-owned C corporation filing.
• The first return is already late: see Late filing and payment penalties.
• A mid-year election, contributed property, or several states complicate the return: gather the election, transfer, and state records for tax preparation.