Understand Your Business Structure When Filing Taxes for Your Business

When filing taxes for your company it’s crucial to know your business structure first. Identifying your business structure affects how you report income and expenses and, ultimately, how you file your taxes. Common business structures for filing taxes for your business include the following.

Sole Proprietorship: A sole proprietor owns and operates an unincorporated business as an individual. When it’s tax time, you, as the sole proprietor, will report your business income and expenses on your personal U.S. federal income tax return using Schedule C.

C Corporation: C Corporations must pay U.S. federal income taxes if they have taxable income after claiming all available credits, losses, and deductions. The C Corporation is responsible for filing its own tax return using Form 1120. Depending on whether the C Corporation pays dividends to shareholders, they may be subjected to double taxation.

S Corporation: S Corporations are “pass-through entities” which means any deductions, losses, income, and credits pass through directly to shareholders, who report their share on their own personal tax returns. A significant advantage of an S Corporation business structure is that there is no double taxation, as profits are only taxed on the personal tax returns of individual shareholders. To file taxes, S Corporations must use the U.S. Income Tax Return Form 1120-S and Schedule K-1 (Form 1065). Form 1120-S reports income, losses, credits, deductions, and employee wages. The S Corporation must then send a Schedule K-1 form to each shareholder to show their portion of any income, losses, credits, or deductions.

Knowing what business structure to file your company’s taxes under can be complex. JTS Associates CPAs is always here to help business owners prepare and file taxes. Contact us today at 516-877-5900 to schedule an appointment.