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How Business Types Pay Business Income Tax

Tax Forms and Processes for Business Types

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When you are considering what type of business to select, consider how each business type pays income taxes. This article compares the types of businesses and explains how each type pays its income taxes. Forms for each type are listed and the process for filing is explained in the individual articles.

1. How a Sole Proprietorship Pays Income Tax

A sole proprietorship is the simplest form of business in the U.S. If you are self-employed or you are an independent contractor, you are a sole proprietor, unless you have chosen to register as another form of business entity. Sole proprietorships file business taxes using Schedule C, as part of the owner's personal tax return.

2. How a Partnership Pays Income Tax

Partnerships do not pay income tax directly; instead, the partners are taxed on their share of the income of the partnership. Learn about the forms and process for completing partnership tax returns for all types of partnerships. The partnership files its taxes on Form 1065, and individual partner shares are reported on Schedule K-1.

3. How a Limted Liability Company Pays Income Tax

A limited liability company is not recognized by the Internal Revenue Service as a taxing entity. A single-member LLC files taxes os a sole proprietorship, using Schedule C. A multiple-member LLC files taxes as a partnership, with individual member shares reported on Schedule K-1.

4. How a Corporation Pays Income Tax

As a separate entity, a corporation pays income tax at the corporate tax rate. A corporation reports and files its taxes on Form 1120.

5. How an S Corporation Pays Income Tax

An S corporation is a type of corporation which pays taxes at the personal tax rate of the owner. The corporation files a tax return using Form 1120-S and individual owner shares are reported on Schedule K-1.
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