July 27, 2017

Do All Businesses Need to File a Federal Tax Return?

Accounting
Taxes

They say “in this world, nothing is certain but death and taxes.” Well, we’re not sure if we hate or love to break it to you, but it turns out the latter is not as certain as the former, at least when it comes to business taxes.

If you’re just getting started as a business, filing taxes may not be the first thing that comes to mind. Some businesses can get away with this (for the first year or so) and others cannot—and things can get expensive if you fail to meet your tax obligations from the start. Follow along to see if your new business comes with a side of immediate tax filing responsibilities.

Not all businesses are required to file a federal tax return… at first

Depending on your company’s entity type and initial business activities, you may not have to worry about filing taxes right away.

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Partnerships can wait to file federal tax returns.

In the initial year(s) of business, U.S. partnerships do not need to file a federal return if the business hasn’t received income or incurred any expenses treated as deductions or credits for federal income tax purposes. Partnerships should only follow this rule in the period of time between forming their business and once they actually start paying expenses and receiving income through the business.

Once you file your first return as a business, tax authorities will expect the returns annually up until you file a “final year” tax return (making it clear that you won’t have any future activities or correspondence with the IRS).

It is worth noting that while there may not be a federal tax return filing requirement in your initial years, there may be still be a requirement to file a state and/or local return, depending on the laws of the state where the business is organized.

Corporations must file a federal tax return regardless of whether they have taxable income.

On the flip side, corporations must file a federal tax return regardless of whether they have taxable income. This means that if you form a corporation, even if you spent no money and received no income, you must still file a corporate federal tax return.

Ultimately, if you have created a business and have yet to start major operations, we recommend that you consult with a tax professional to ensure that you remain in compliance with federal and state tax laws. Just one less thing to worry about once your business gets up and running.

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Elise Fajen

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Summary

This article clarifies that not all businesses are immediately required to file federal tax returns. Partnerships may be exempt in their initial years if they have no income or deductible expenses. However, corporations must file a federal tax return regardless of income or expenses. State and local filing requirements may still apply even if federal ones are waived.

Key Facts

Partnerships may not need to file a federal tax return in their initial years if they have no income or deductible expenses.

Corporations are required to file a federal tax return regardless of whether they have taxable income.

State and local tax return requirements may still apply even if federal requirements are waived for initial years.

Once a business files its first federal tax return, annual filings are expected until a 'final year' return is submitted.

Consulting a tax professional is recommended to ensure compliance with federal and state tax laws, especially when starting operations.

Frequently Asked Questions

Do all businesses need to file a federal tax return?

Not all businesses are required to file a federal tax return, especially in their initial years, depending on the company's entity type and initial business activities.

When do partnerships need to file a federal tax return?

In the initial year(s) of business, U.S. partnerships do not need to file a federal return if the business hasn’t received income or incurred any expenses treated as deductions or credits for federal income tax purposes. This rule applies between forming the business and starting to pay expenses and receive income.

Do corporations have to file a federal tax return?

Corporations must file a federal tax return regardless of whether they have taxable income. This means that if you form a corporation, even if you spent no money and received no income, you must still file a corporate federal tax return.

Are there state or local tax return requirements even if federal ones are not required?

While there may not be a federal tax return filing requirement in initial years, there may still be a requirement to file a state and/or local return, depending on the laws of the state where the business is organized.