Form 1040, Schedule C, Form 1065, Form 1120 or 1120S? What’s the right answer for your business?
When you start a new business, you probably already know that you’ll have to file and pay income taxes. But how do you know where to report the income and expenses for your business?
The correct tax form to use will depend on the type of business entity and whether you filed an election with the IRS to change the default choice for your business.
With different due dates for different types of tax returns, and harsh IRS penalties for filing late, making the wrong choice can cost you both time and money.
Here’s a quick primer to get you pointed in the right direction:
If Your Business is a Sole Proprietorship (You own the business by yourself, and it’s not an LLC or a corporation)
If you are a sole proprietor, then you’ll file Schedule C with your Form 1040 (Individual Income Tax Return) to report the income and expenses for your business.
If Your Business is a Single-Member LLC (You formed a Limited Liability Company and you are the only member)
File Schedule C with your Form 1040 (unless you filed the election with the IRS to treat your LLC as a corporation, then you’d file Form 1120 to be taxed as a C corporation or 1120S to be taxed as an S corporation).
If Your Business is an LLC With Two or More Members
File Form 1065, US Return of Partnership Income (unless you filed the election with the IRS to treat your LLC as a corporation, then file Form 1120 or 1120S for your business). If you file Form 1065 or 1120S give each member copies of Schedule K-1 to report on their individual income tax returns.
If Your Business is a Partnership
File Form 1065, US Return of Partnership Income. Give each partner copies of Schedule K-1 to report on their individual income tax returns.
If Your Business is a Corporation
File Form 1120, US Corporation Income Tax Return, if your business is a C corporation.
File Form 1120S, US Income Tax Return for an S Corporation, if your corporation elected to be taxed as an S corporation (That election is made by filing Form 2553 with the IRS). Give each shareholder copies of their Schedule K-1 to report on their individual income tax return.
Remember, knowing which tax return to file for your business isn’t the same thing as knowing how to properly prepare that tax return.
If you’re looking for someone who can help you identify and implement effective tax strategies for your business, and file the right tax return, I am accepting a limited number of new clients.