There are three main types of business entities that require federal tax filings. Partnerships, C-Corps, and S-Corps. Below is a discussion of each, as well as a brief comment on LLCs:
If you have more than one member in your business but have not otherwise incorporated as an S-Corp or C-Corp, you should likely be filing this return. It is reported on Federal Form 1065 and (if applicable) certain state schedules. We support all 50 states. This default classification arises if you apply for an EIN number for a business entity that has more than one owner. This default classification also arises if you have registered an LLC with your state and that LLC has more than one owner, equity partner, or member.
An S-Corp is a small business corporation structure allowed by the IRS. It is reported on Federal Form 1120-S and (if applicable) certain state schedules. We support all 50 states. This is not a default classification – rather, you must apply for it and be approved by the IRS. The appeal of this classification is that it allows for decreased self-employment taxes on your individual return. These tax savings may be substantial, depending on the annual net income of your business. Please contact us for more details or to file your annual return.
A C-Corp is a taxable entity that pays taxes in its own right. It is reported on Federal Form 1120 and (if applicable) certain state schedules. We support all 50 states. This structure is the default classification you must file with the IRS after you file as a corporation with your state or after registering your EIN as a corporation with the IRS. The C-Corp structure allows many shareholders and is the common classification for many Delaware startups and larger businesses.
An LLC often has state filing requirements. We support all 50 states. However, for federal purposes, you would be filing your LLC taxes on one of two forms: From 1040 Schedule C or Form 1065. If you are the only owner, partner, or member of your LLC, then you would report on Federal Form 1040 Schedule C. If you have more than one owner, partner, or member of the business, then you would report on Form 1065, unless you have specifically incorporated as an S-Corp or other type of entity.
Please contact us anytime regarding any of these entity types as we have helped thousands of businesses of various size over the years.
Corporate and partnership taxation are two distinct areas of tax law that apply to different types of business entities. Here’s an overview of each:
1. Corporate Taxation:
• Corporations are legal entities separate from their owners, known as shareholders.
• Corporate taxation involves the taxation of profits earned by corporations.
• Corporations are subject to corporate income tax on their profits at the federal and state levels.
• Corporate income tax rates vary depending on the level of taxable income and the jurisdiction.
• Corporations are required to file an annual corporate tax return, typically Form 1120 for federal taxes.
• Certain corporate structures, such as S corporations, may be subject to different tax treatment. For example, S corporations are not taxed at the corporate level; instead, profits and losses “pass through” to shareholders who report them on their individual tax returns.
• Corporations may also be subject to other taxes, such as payroll taxes, excise taxes, and state franchise taxes.
2. Partnership Taxation:
• Partnerships are business entities formed by two or more individuals or entities who share ownership and profits.
• Partnership taxation involves the taxation of income earned by partnerships and the allocation of that income to the partners.
• Unlike corporations, partnerships are not subject to entity-level taxation. Instead, profits and losses “pass through” to the partners, who report them on their individual tax returns.
• Partnerships are required to file an annual information return, typically Form 1065 for federal taxes, to report their income, deductions, credits, and other relevant information to the IRS.
• Partnerships use a partnership agreement to allocate profits, losses, and tax liabilities among partners according to their ownership interests or other agreed-upon criteria.
• Partners are subject to self-employment tax on their share of partnership income, which includes both ordinary income and certain types of partnership income, such as guaranteed payments.
• Partnerships may also be subject to state and local taxes, depending on the jurisdiction in which they operate.
In summary, corporate taxation applies to corporations, which are taxed at the entity level on their profits, while partnership taxation applies to partnerships, where profits and losses “pass through” to the partners who report them on their individual tax returns. The choice between forming a corporation or a partnership can have significant tax implications, and businesses should carefully consider their options in consultation with tax professionals.
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