Partnerships
A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business.
A partnership is not a taxable entity. Each partner includes his or her share of the partnership’s income or loss on his or her tax return.
Partners are not employees and should not be issued a Form W-2 in lieu of Form 1065, Schedule K-1, for distributions or guaranteed payments from the partnership.
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TIP: Use Form 1065, U.S. Partnership Return of Income (PDF), to report the profit or loss of a partnership. |
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TIP: For more information on partnerships, refer to Publication 541, Partnerships (PDF) |
Corporations
In forming a corporation, prospective shareholders transfer money, property, or both, for the corporation’s capital stock. A corporation generally takes the same deductions as a sole proprietorship to compute its taxable income. A corporation can also take special deductions. The profit of a corporation is taxed to both the corporation and to the shareholders when the profit is distributed as dividends. However, shareholders cannot deduct any loss of the corporation.
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TIP: Most corporations file Form 1120, U.S. Corporation Income Tax Return (PDF), or Form 1120-A, U.S. Corporation Short-Form Income Tax Return (PDF). |
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TIP: For more information on corporations, refer to Publication 542, Corporations (PDF). |
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TIP: Tax treatment of payments to yourself is considered wages or payments to an employee. Please refer to self-employment under the Reporting section. |
“S” Corporations
An eligible domestic corporation can avoid double taxation (once to the shareholders and again to the corporation) by electing to be treated as an S corporation. An S corporation generally is exempt from federal income tax. Its shareholders include on their tax returns their share of the corporation’s separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss.
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TIP: A corporation elects to be treated as an S corporation by filing Form 2553, Election by a Small Business Corporation (PDF). |
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TIP: An “S” corporation files its return on Form 1120S, U.S. Income Tax Return for an S Corporation (PDF). |
LLCs and LLPs
An LLC and/or LLP makes an entity election with Form 8832, Entity Classification Election. An LLC may be a sole proprietorship, a corporation, or a partnership. (A minimum of two members is required for federal tax purposes to operate an LLC as a partnership.) Consequently, the applicable tax forms, estimated tax payment requirements, and related tax publications depend upon whether the LLC operates as a sole proprietorship, corporation, or partnership. The default entity for federal tax treatment of an LLC with two or more members is a partnership. The default entity of an LLP is a partnership and the partnership tax forms, estimated tax payment requirements, and partnership publications apply.
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TIP: Use a separate Schedule C (Form 1040), Profit or Loss From Business (PDF), to report the profit or loss from each business (except farming) you operate as a sole proprietorship LLC. If you have only one business, you may be able to use Schedule C-EZ, Net Profit From Business(PDF). |
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TIP: If you are the sole proprietor LLC of a farming business, use Schedule F (Form 1040), Profit or Loss From Farming (PDF), to report your profit or loss. |
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TIP: For more information on sole proprietorship LLCs, refer to Publication 334, Tax Guide for Small Business(PDF). However, if the business of your LLC or LLP is farming, refer to Publication 225, Farmer’s Tax Guide (PDF). |
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TIP: Most corporate LLCs file Form 1120, U.S. Corporation Income Tax Return (PDF), or Form 1120-A, U.S. Corporation Short-Form Income Tax Return (PDF). |
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TIP: A corporate LLC elects to be treated as an S corporation by filing Form 2553, Election by a Small Business Corporation (PDF). |
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TIP: An LLC that has elected to be treated as an S corporation files its return on Form 1120S, U.S. Income Tax Return for an S Corporation (PDF). |
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TIP: Make a limited liability company/partnership (LLC/LLP) election with Form 8832, Entity Classification Election (PDF). |
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TIP: For more information on LLCs that are incorporated, refer to Publication 542, Corporations (PDF). |
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TIP: For more information on LLPs, refer to Publication 541, Partnerships (PDF). |
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