Can A Small Business Get A Tax Refund?
Written by Ben Robinson
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Can a small business get a tax refund? The short answer is not unless they are a C-corporation meeting certain requirements. The long answer is a bit more complex, and I’ll go through it in the guide below, as well as tell you why small business tax refunds are not always a good thing.
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In This Article:
- What do you mean by a tax refund?
- Who is entitled to a tax refund?
- How is my small business’s tax refund calculated?
- Where do I get my tax refund for my small business?
- When will I actually receive my small business tax refund?
- Why would I overpay my taxes during the year?
- Is the coronavirus pandemic affecting small business tax refunds this year?
What do you mean by a tax refund?
By a “tax refund,” I mean a tax credit a small business gets after it pays its taxes. In other words, some money back.
Who is entitled to a tax refund?
In terms of small businesses, the only ones who get a refund credited to the company itself are C-corporations. In these business entities, the owners or shareholders are taxed separately from the business itself.
In other types of corporations — most notably S-corporations — the revenue and expenses are primarily charged straight to the owners and are considered part of their individual taxes. In those cases, tax refunds are calculated the same way as they are for individuals — a different subject entirely.
How is my small business’s tax refund calculated?
Small businesses generally pay their taxes in installments throughout the year, which they can do with this PDF guide. Most companies need to make payments every three months to avoid fees from the IRS.
If at the end of twelve months, the payments the company made during the year exceed the actual amount owed, then the company will receive a refund for the differential.
Where do I get my tax refund for my small business?
Tax refunds are actually pretty effortless to obtain as long as you qualify. Without being prompted, the IRS will send a check to the business address denoted on your tax form.
When will I actually receive my small business tax refund?
Most years, the IRS pays refunds on electronic tax returns within 3 weeks and paper tax returns within 6 weeks.
Due to the coronavirus pandemic, however, 2020 tax refunds for small businesses are being delayed. The IRS has suggested 3 weeks behind the standard processing time as the supposed delay time, but there is no hard and fast data set at this time. You can use this “where’s my refund” tool to check the status of your business’s refund.
Why would I overpay my taxes during the year?
First and foremost, most small business types incur penalties for not paying estimated taxes every 3 months.
In addition, many business owners — even the ones who don’t technically have to pay — prefer to pay their taxes over the course of the year. That way, they do not have a huge bill that suddenly pops up on tax day.
In fact, many business owners intentionally overestimate their quarterly payments by a bit so that they receive a nice refund when tax season comes. It lets them take a holiday or buy something beautiful for themselves to alleviate the stress brought on by paying taxes.
Other business owners disagree with the idea of overestimating quarterly tax payments. In fact, they argue that getting a tax refund is a sign you’re doing something wrong. The IRS typically does not pay interest on the leftovers from the tax estimations it receives, so they say sending extra taxes to the IRS during the year is like giving the IRS a free loan.
Is the coronavirus pandemic affecting small business tax refunds this year?
Yes! Since the IRS is taking longer to pay back tax refunds to small businesses this year, it is paying out interest as a sort of apology gift. According to Accounting Today, the IRS will pay interest to everyone who filed their taxes before this year’s July 15 deadline. The interest payment will be sent out separately from the tax refund payment itself.
Hopefully, this short guide answers your questions related to “can a small business get a tax refund.” If you have any unanswered questions, feel free to drop me a line on Facebook.
And for some tips on maximizing your tax refund in the first place, check out this informative video!
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