Question

What is the tax implications of each of the business forms listed below:

Sole proprietorship: Schedule C of Form 1040.

Partnership: Form 1065.

Corporation: Form 1120.

S corporation: Form 1120S.

Answer 1

Sole proprietorship: Schedule C of Form 1040.

This would imply the person is running his own business. All the expenses and income of the busienss are entered in it. Also known as calculation sheet of profit and loss from business. In this form, all the income shown in 1099-MISC by your clients are to be recorded along with the income not reported.

Partnership: Form 1065.

Though partnerhip firm do not pay income tax because of the pass through status it enjoys, however they have to file the annual return showing income, deductions, gains, losses, etc., from its operations. also they are required to submit copies of Schedule K-1 (Form 1065) to the partners by the date Form 1065 is required to be filed, including extensions.

Corporation: Form 1120.

Domestic corporations use this form to:

• Report their income, gains, losses, deductions, credits.
• Figure their income tax liability.

However, other business entities that have elected to be taxed as a corporation can also elect to file this fom

S corporation: Form 1120S.

Just like C corporation, S corp. also files corporate return but unlike them they enjoy pass through status and do not have pay income tax. Except that the tax is paid by owners, all the proceedings are same of S corp wrt C corp. The profit share of each owner is reported in the K-1 form which is then erported by the owner in thier  Line 17 of the shareholder's Form 1040.