Starting a new business and keeping it going through its first year is a great accomplishment. Congratulations!
When you file a federal income tax return for your business, the paperwork and forms you will use depend on how your business is organized.
Here’s how you’ll file your business return, based on your business type:
Sole Proprietor
If you decided to keep it simple and structure your business as a sole proprietorship, you’re in luck. The paperwork and tax filing requirements are far easier as a sole proprietor than for any other type of business.
As a sole proprietor, you are the business. You can report all of your business income and expenses on a Schedule C, which you file with your personal income tax return (Form 1040). The business itself is not taxed separately.
You don’t have to worry about the net worth of your Schedule C business from year to year, because you and the business are the same.
If you have more than one business, report each business activity on a separate Schedule C. If you have a farm that you run as a sole proprietor, file Schedule F with your 1040 individual income tax return.
C Corporation
If you’ve incorporated as a C corporation, you will file Form 1120 for your business return. Form 1120 is a little more involved than a Schedule C; it asks more questions and you must provide balance sheet information for the beginning and end of the tax period.
Form 1120 is not filed as part of your personal income tax return. The corporation reports any dividends or other tax information that applies to you on the applicable Form 1099.
Corporations must pay tax on their earnings, if applicable. Their shareholders also pay tax on dividends and other returns. This is called double taxation, because the same income is taxed twice.
Partnership
If your business is structured as a partnership, you will use Form 1065 to file your return. A partnership, unlike a corporation, does not pay tax. Instead, it passes net income, income tax credits, and other tax items through to each of the partners – those people who have a beneficial interest in the business.
Each partner receives a Schedule K-1 that reports their share of items to report on their tax return.
When you receive a Schedule K-1 from your partnership return, you report partnership tax items on Schedule E, Part II, of your Form 1040 individual tax return.
S Corporation
S corporations are structured like C corporations but have a limited number of shareholders. Like a corporation, an S corporation sells shares but the income passes directly through to its shareholders.
The shareholders report the associated income and loss on their personal tax returns, using their individual income tax rates. This enables the S corporation to avoid double taxation on its income.
In this respect, it works like a partnership return using Form 1065 to file your return.
Nonprofit Organization
Nonprofit organizations, such as ministries, charities, and many educational organizations, file Form 990 to report information including income, expenses, and balance sheet information.
If you run a nonprofit organization, you must also provide information about the officers of the organization and your sources of funding.
If your nonprofit organization pays you – for example if you are an employee of your nonprofit organization – you receive a Form W-2 or other form so you can report earnings on your individual income tax return.
Limited Liability Company (LLC)
If your business is organized as a limited liability company and you own 100 percent of it, you can still file Schedule C with your individual income tax return, just as you would with a sole proprietorship.
You have additional filing choices with an LLC, however. Depending on whether you want to be treated as a C corporation or an S corporation, you can choose to file Form 1120 or 1120-S, respectively. Alternatively, you can file as a partnership, using Form 1065.
What are the deadlines for filing my business taxes?
Due March 15th:
- Forms 1120, 1120A and 1120S
Due April 15th (for 2015 taxes, the filing deadline is April 18, 2016):
- Form 1065
- Form 1040 Schedule C
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