5 Business Entity Types & the Income tax filings
Sole Proprietorship: "Sole Prop"
Single Member LLC: "SMLLC"
Partnership LLC: "Partnership"
C Corporation: "C Corp"
S Corporation: "S Corp"
Filing business income tax returns can be a complex process and the specific requirements will depend on the type of business entity. Here's a general overview of the filing process for each type of entity I will discuss below
Sole Proprietorship
Sole proprietors are Self Employed. The Income Tax Filings are completed within the Individual tax returns, where the business portion is on Schedule C. The Sch C is the Income statement or the Profit & Loss Statement. or “P&L”.
The P&L will detail the Gross Income, and account for the business expenses, calculating a net business income. The net profit is then used on Schedule “SE” to account for self-employment taxes and the net income flows into the 1040 / your personal income tax return to account for the Income Tax.
Single Member LLC:
The Single Member LLC or SMLCC is an individual's steps to form a business entity with the State for Legal Protections in case of liabilities.
For tax purposes, the income and expenses of a single-member LLC are generally reported on the owner's personal income tax return using Schedule C (Form 1040) as mentioned above. This is known as a “disregarded enitity” since the tax filings are done on the personal income tax level.
The Additional tax forms required are usually at the state level to account for State Franchise, Business Entity or an LLC fee owed to the State.
Partnership LLC
Partnerships file Form 1065, U.S. Return of Partnership Income to file the income tax return. The 1065 reports the income, deductions, and credits of the partnership.
Each partner is then given a Schedule K-1, which reports their share of the partnership's income, deductions, and credits. The partners then use this information to complete their personal income tax returns.
The partnership itself does not pay income tax. Instead, each partner reports their share of the partnership's income on their personal income tax return.
C Corporation:
Corporations file Form 1120, U.S. Corporation Income Tax Return to fi;e the income tax return. Form 1120 reports the income, deductions, and credits of the corporation.
The corporation is a separate tax entity, so the income and expenses are not reported on the owner's personal income tax return.
The shareholders also pay tax on any dividends they receive from the corporation at their individual tax rate.
S Corporation:
S Corporations file Form 1120S, U.S. Income Tax Return to file the income taxes. Form 1120S reports the income, deductions, and credits of the S corporation.
Similar to a partnership’s K1, each shareholder is then given a Schedule K-1, which reports their share of the corporation's income, deductions, and credits.
The shareholders then use this information to complete their personal income tax returns.
