Different types of business taxes
When tax season comes, it’s important to understand your options for filing business taxes. IRS requirements for small business taxes can be more or less complex, depending on the type of business entity. For example, LLC taxes are usually quite simple, while dealing with S Corp taxes can be more complicated and requires a specialized S Corp tax return. However, filing as an S Corporation could save you tax dollars. Meanwhile, if your company is a C Corporation, you need to pay C Corp tax rates on any qualifying corporate profits.
Filing a business tax return is part of the annual requirements for managing your small business taxes. Just like your personal tax return, the IRS expects your business to file a business tax return even if your business does not owe taxes.
Here are a few key points to keep in mind when filing business taxes, depending on your choice of business entity:
LLC Taxes
A Limited Liability Company (LLC) is generally treated as a “pass-through” entity or “disregarded entity” for tax purposes, which means that your LLC does not pay taxes itself; all of the LLC’s profits or losses are “passed through” directly to the personal tax returns of the LLC partners.
However, just because the LLC is a pass-through entity does not mean that your LLC does not have to file any tax forms. Your LLC has to file:
Form 1065
Partnership Return of Income
Schedule K-1
Per each member
If your LLC is a single-member LLC, you need to report the income from your LLC on your personal tax return using Schedule C, and your business will be taxed as a sole proprietorship unless you elect to be classified differently. If you have multiple members in your LLC, your LLC will be treated as a partnership for tax purposes. If you are a two-member LLC, and both members are a married couple, you have the option to elect your tax classification as a single-member or multimember (partnership) LLC. But take note — this caveat only applies to the nine community property states:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
Alaska is an opt-in community property state that allows the option to choose to make your property community property with your spouse. "Community property" essentially means that property is owned jointly by both spouses and is divided upon death, annulment or divorce.
The LLC structure offers owners some important flexibility for tax purposes; with an LLC, you can elect to have your LLC file as an S Corporation for tax purposes as described below
S Corp Taxes
If you set up your company to be an S Corporation, or elect to have your LLC file taxes as an S Corporation, this can have some tax advantages to reduce your self-employment tax liability. However, filing as an S Corporation requires you to file
Form 8832
Entity Classification Election
Form 1120S
Corporation Income Tax Return
Form 1120-A
A shortened version of the 1120S form
S Corporations, like LLCs, do not have to pay corporate income tax. Instead, the company’s income gets passed through to the owners and is reported on the company owners’ personal income tax returns. The tax treatment of S Corporations is different from LLCs, in that the company owner(s) can choose to pay the members a salary (subject to self-employment taxes) and also assign additional income to be treated as a distribution, which is not subject to self-employment taxes. This can give the owners some flexibility in how they pay themselves from the company’s profits, as well as reduce their self-employment taxes.
Review how the S-Corporation can considerably reduce your self employment tax obligations with our
C Corporation Taxes
A C Corporation is required to pay corporate income tax. Unlike an LLC or S Corporation, this type of business structure is not a “pass through” entity. That means that your C Corporation will be required to pay taxes on the business’s income, and then the business owners will also have to pay personal income tax upon the taxable dividends paid to the owners by the business. This situation is known as “double taxation” because your company has to pay corporate income tax first, and then you as the business owner have to pay personal income tax.C Corporations are required to file:
Form 1120
Corporation Income Tax Return
Form 1040
The owners must report their income from the C Corporation (salary and any dividends) on their personal tax returns
As the owner of a C Corporation, if you pay yourself a salary, you will also have to pay personal income taxes and FICA withholdings (self-employment taxes, etc.) based on your salary.
Filing small business taxes can be complicated and often requires the assistance of professional tax advisers. Getting professional tax help can often make the difference in avoiding costly errors or failing to comply with IRS rules. With that in mind, Bizee has teamed up with an accredited certified public accounting firm that specializes with small business owners nationwide to help you with your tax filing needs this coming tax season.
Since tax season is right around the corner and comes swiftly when you're a busy business owner, we wanted to give you access to a CPA to get your personal and business tax returns prepared professionally. If you have a Partnership, S Corporation or a C Corporation, you will have to file a business tax return regardless of whether you have any activity or not in 2016. Those of you who have single-member LLCs might have a filing requirement for the business as well, but that depends on whether you had activity in 2016 and some states required some form of filing regardless of inactivity.
