The Internal Income Code (the IRC) is the source for imposing earnings tax on small businesses. The tax code treats each entity type a bit of different but ultimately the income tax on the company’s taxable income is payable by the small business owner. A Sole Proprietor has to file schedule C to account business income and expenses. The schedule C is part of the 1040 form where he discloses all of his earnings. A Member of a partnership or an LLC receives a K-1 form which reports his/her share from the business’ taxable income. The K-1 form is then reported on form 1040. Shareholders of an S-corporation do the same. The rates of the federal income tax that a small business owner will probably pay depend on his/her filing standing and residency status and income level. For current tax rates please consult with the Internal Revenue Service Publication Seventeen. To register your business with the Internal Revenue Service you want to fill out IRS form SS-4 to obtain Employer ID Number (EIN).
If your business is an S-corporation, partnership, or an LLC that’s being taxed for instance like an S corporation or partnership, you have to file a separate business tax return, but technically the company does not pay any income tax. The S corporation files Form 1120-S; the partnership records Form 1065. In the event you look on these forms, the heading says “income tax return.” But the S corporation or partnership (or LLC being taxed similar to that of an S corp. or partnership) doesn’t also pay any income tax. In effect, this so-called “income tax return” (Form 1120-S or Form 1065 is a details return, giving the Internal revenue service a summary of the business’ revenue and expenses.
The LLC does not have a LLC-only tax return form. For income tax purposes, the LLC is like a chameleon and can be taxed as a sole proprietorship, partnership, S corporation or C corporation. So it will file whatever tax type is required for the kind of entity it chose to be treated as for tax purposes.
A question that I am often asked is, “Should I incorporate my business to get quite a few tax breaks?” My answer is possibly, however keep this in mind. The reason firms can take advantage of tax breaks and deductions is that they could offer benefits and products to their staff members that enable them to lessen their entire tax obligations. It is best to first determine what the goals are for the company and the owner, and then pick the entity best suited to help accomplish these goals.
Find out more about business taxes at http://www.desertrosetax.com