06/27/2024
Business Types
1- Sole Proprietorship: Someone who owns an unincorporated business by themselves.
Forms you need to file:
✅Income Tax form 1040, 1040-SR, Schedule C
✅Self-employment tax / schedule SE
✅Estimated Tax - Form 1040-ES
✅Social Security and medicate tax and income tax withholdings:
✔️Form 941 Employer's Quarterly Federal Tax Return
✔️Form 943 Employe's Annual Federal Tax Return for Agricultural Employees
✔️Form 944 Employer's Annual Federal tax return
✅Providing information on social security and medicate taxes and income tax withholding
✔️Form W2: Wages and tax statement
✔️Form w3: Transmittal of wage and tax statement
✅Federal Unemployment (FUTA) tax:
✔️Form 940: Employer's annual federal unemployment (FUTA) tax return
Note: If you are the sole member of a domestic LLC and elect to treat the LLC as a corporation, you are NOT a sole proprietor.
2- Corporation: A large entity that is separate and distinct from its owners.
Forming a corporation: In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock.
- A Corporation generally takes the same deductions as a sole proprietorship to figure its taxable income.
- A corporation can also take special deductions
- For Federal Tax Purposes, a C corporation is recognized as a separate taxpaying entity.
- A corporation conducts business, realized net income or loss, pay taxes, and distributes profits to shareholders.
Note: The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. That creates a double tax.
- The corporation does not get a tax deduction when it distributes dividends to shareholders. Also, shareholders cannot deduct any loss of the corporation.
Forms you need to file:
Form 1120 - U.S. Corporation Income Tax Return.
Employment Taxes: Form 940, 942. or 943.
3- Partnership: A relationship existing between two ore more persons who join to carry on a trade or business.
In different words, Partnership is the relationship between two or more people to trade or business. Each person contributes money, property, labor, or skill, and shares in the profit or losses of business.
Reporting Partnership Income:
- A partnership must file an annual information return to report the income, deductions, gains, losses, etc. from its operations, but it does not pay income tax; Instead, it "pass-through" profits or losses to its partners.
- Each partner reports their share of the partnership's income or loss on their personal tax return.
Note: Partners are not employees and should not be issued a form W2
- The Partnership must furnish copies of schedule K-1 to the partners.
Forms for Partnerships:
Form 1065 - U.S. Return of Partnership
Tax Employment Taxes: Form 940, 942. or 943.
4- S-Corporations: are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes
- Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates.
- Corporations are responsible for tax on certain build-in gains and passive income at the entity level.
To qualify for S corporation status, the corporation must meet the following requirements:
Be a domestic corporation
Have only allowable shareholders
- May be individuals, certain trust, and estates
- May not be partnerships, corporations or non-resident alien shareholders.
Have no more than 100 shareholders
have only one class of stock
Not be an ineligible corporation (i.e. certain financial institutions, insurance, companies, and domestic international sales corporations)
In order to become an S-corporation, the corporation must submit from 2553, Election by a small business corporation, signed by all the shareholders.
Fling Requirements:
Income Tax: Form 1120-S & Schedule K-1
Employment Tax: Forms 940, 941, or 943
