Congratulations on starting your new business. As a new business owner, taxes are probably the last thing on your mind. But since there’s no getting around them, here is some basic information about the forms you’ll need to file as a new business owner. In general, the form you must use to file your business taxes is determined by the type of business you have organized. There are many business structures available today. But for the purposes of this article, let’s stick to the most popular: sole proprietor, partnership, corporation, and limited liability company.
Each entity type should apply to get a Employer Identification Number (EIN) from the IRS using Form SS-4. Checking with your specific state about getting a state tax ID is also suggested as requirements vary by state. Check with your state and local authorities to see the requirements to form a business, as well as what type of license, permit, etc. you need to operate there.
Sole Proprietor
In most cases, new businesses operate as a sole proprietorship. When you prepare your individual tax return, you will report the activity from your sole proprietorship in your personal return as a self-employed person. The profit or loss from the business will be reported on Schedule C, which is then transferred to page 1 of Form 1040, where it is included with your taxable income.
*If your small business income is from rents or royalties, you will use Schedule E. If it’s farming income, you will use Schedule F.
It’s important to keep accurate records of your business income and expenses, as you will be required to report them on your taxes.
Partnership, S Corporation, and C Corporation
If you are organized as a partnership, you file the strictly informational Form 1065. From this partnership return, a Schedule K-1 is produced for each partner. This Schedule K-1 is then used to report any pass-through income or deductions on your personal Form 1040.
If you are organized as an S corporation, you will file your information on Form 1120S. S corporations also generate a Schedule K-1 that is produced for each shareholder in a similar way as the partnership. The shareholder will then report the activity from the S corporation Schedule K-1 and will report any pass-through profits or losses on your personal tax return.
If you are organized as a C Corporation, you should file a Form 1120. No further reporting is required on your personal return as the C corporation is responsible for any taxes due on the corporate tax return.
Limited Liability Company (LLC)
Some business owners choose to organize under the popular LLC structure. LLCs have a lot of flexibility when it comes to filing taxes. They can be taxed as if they are a sole proprietor (if they have only one member), a partnership, or even as a corporation (C or S). If you are the only member of your LLC, then you will be automatically treated like a sole proprietor. Most multiple-member LLCs will be treated like a partnership. If you decide you would like to be taxed in a different manner than these defaults, then you need to file Form 8832 to elect another classification. Note that if you intend to be classified as an S Corporation, you need to complete Form 2553. Once you determine your business structure for tax purposes, just use the recommended forms above to file.
When These Forms are Due
Partnership returns and S-corporation returns that operate on a calendar year must be filed by the March 15th tax deadline.
C Corporation returns that operate on a calendar year, and Individual Form 1040 (which includes Schedule C) must be filed by the April 15 tax deadline.