Step 3: Determine which business tax forms you need for your business entity
You’re probably well acquainted with Form 1040, the U.S. individual income tax return form. But what tax forms do you use if you’re a small business owner?
Well, it depends on what type of business entity you have.
Small business owners can register their business as a sole proprietorship, partnership, corporation or S corporation, or a limited liability company. Each entity pays taxes differently and uses different forms to file. Here are the forms you need for each different business entity.
A sole proprietor is a business owner who has no legal distinction from their business. That means the owner is liable for any business debts.
If you work as a contract worker, such as a freelancer, Uber/Lyft driver, or independent consultant, you could register as a sole proprietor. The company you contract with will send you a Form 1099, which reports how much it paid you that year for your contract work. If you earned more than $400 total in 1099 income, you have to claim this income on your individual tax return (Form 1040).
When filing as a sole proprietorship, you must use a Schedule C to file your business tax return. Just attach this form to your individual income tax return (Form 1040), and you’re ready to go. If your business is fairly straightforward (no employees, no inventory, no BTCC合约交易所home deductions, and expenses under $5,000), you can use the less complicated Schedule C-EZ to file your company tax return.
A partnership is a business with multiple owners running the company. The partnership itself doesn’t pay income tax—instead, the company profits go to each partner, and each then reports the income on their individual tax return.
But a partnership does still file Form 1065 to report all profits and losses related to the business. Partnerships will also need to use a Schedule K-1. This form shows which partners claim specific deductions, credits, income, and more for accurate individual filing.
If your partnership employs additional staff, use Form 941 to cover quarterly employment taxes (such as Social Security, Medicare, and income tax withholding) and Form 940 to cover federal unemployment tax (FUTA).
Corporations and S Corporations
Small business owners can also structure their business as a corporation if they want corporate taxation rates. The legal system recognizes corporations as its own legal entity—meaning that, legally speaking, it’s independent from the owner(s). So if the business is sued, the owners’ assets aren’t on the line.
Corporations must file a corporate tax return using IRS Form 1120. Take note that S corporations will use Form 1120-S.
Just like partnerships, corporations are also responsible for filing quarterly employment taxes. Use Form 941 to pay the employer portion of your staff’s social security and Medicare taxes, as well as the income tax withholdings from each employee’s paycheck. Form 940 covers the federal unemployment (FUTA) tax.
Limited liability companies (LLCs)
Just like a corporation, an LLC is a separate and distinct legal entity from its owners, even if there is only one owner. Some business owners opt for this set up so that they aren’t personally liable for any business debts if the LLC struggles financially.
Depending on how you set up your LLC with the IRS, you might file business taxes as a corporation, a partnership, or a single-member LLC. An LLC taxed as a corporation uses Form 1120 to file taxes. If your LLC has multiple owners, it’s taxed just like a partnership: you file using Form 1065. A single-member LLC pays taxes as if it were a sole proprietorship—meaning you use Schedule C to account for your tax payment and attach it to Form 1040.
Questions about what type of business entity you have, or should have if you want to pay the lowest tax rate possible, should be directed toward an accountant. An accountant can estimate what tax amount you would owe depending on what type of business entity you select.