How many tax forms does the IRS have? I don’t think anyone knows. Fortunately, we need to understand only a handful of them to know what your company must file, what your company gives to you, and what you must file.
US citizens must file one of three federal income tax returns. They are Form 1040EZ, Form 1040A and Form 1040. Form 1040EZ is not suitable for business owners because it is a “bare bones” tax return. If your business is a “c” corporation and you receive dividends, but have taxable income of $100,000 or less, you could use Form 1040A. For everything else, you should use Form 1040. We’ll assume you use the most common form, Form 1040.
There are many schedules that can be attached to a Form 1040. This blog post does not include a complete list of those schedules. It summarizes the most common situations. We’ll go from simple to more complex.
Tax Forms for Sole Proprietors
A sole proprietor would file Form 1040 and would include Schedule C (“Profit or Loss from Business”). Schedule C is pretty straightforward. You list your business income and expenses, subtract one from the other, then enter that information on your Form 1040.
Tax Forms for LLCs
If you are the sole owner (“member”) of an LLC, then you would file just the way you would as a sole proprietor: The IRS considers LLCs pass-through entities, and there is only one of you, so you report just as you would as a sole proprietor. The LLC itself files nothing.
The IRS considers multi-member LLCs as partnerships for federal taxation purposes. Therefore, your LLC normally would file Form 1065 (“U.S. Return of Partnership Income”). The LLC must furnish each of the members with a Form K-1 (“Partner’s Share of Income, Deductions, Credits, etc.”). The information from the K-1 is included in your Form 1040, but you don’t send the IRS a copy of the K-1 with your tax return.
Tax Forms for Corporations
Corporations file a Form 1120 if they are “c” corporations. If you are employed by your “c” corporation, you will receive a W-2 just like you would from any other employment. If you receive dividends from your “c” corporation, the corporation should give you a Form 1099-DIV (“Dividends and Distributions”). You will insert the information from the Form 1099-DIV into your federal income tax return. You don’t file the Form 1099-DIV with your return.
“S” corporations file a Form 1120S. Like LLCs, “s” corporations are pass-through entities for federal income tax purposes. If you receive a distribution from your “s” corporation, then you would report that money on Schedule E (“Supplemental Income or Loss”) to your Form 1040.
A Word of Advice
Taxation is a complex subject. You might well need the assistance of an accountant to file the forms listed above although some of the tax software makes it easier. If there is anything at all about your taxes that you don’t understand, consult an accountant!