Owning a business in a competitive world needs more things than just courage to go ahead. First and foremost, the entrepreneur needs to understand the various formats of business, its investments requirements, implications, the taxation factors as well as returns expected. Business can be in the form of a sole proprietorship, a Limited liability company, an S Corporation or a C Corporation (which includes publicly-held companies).
One of the major advantage of organizing ones business as a Limited Liability Company (LLC) or an S corp. is that ones personal assets are protected from the creditors. Secondly, both LLCs and S corps help to avoid paying both personal and corporate taxes. However, the type of business determines the taxes and the payment methods. Business taxes in general are of four types- Income Tax, Self-Employment Tax, Employment Taxes and Excise Tax. Sole proprietorships do not file a separate business tax return. The expenses and income (profit or loss) from the business are shown in the individual’s income tax return.
However, the LLC tax implications differ from those of corporations in that they do not file an income tax return. Since the income from the business is passed down to the members in LLCs, profits or losses are claimed on their personal tax forms. Single-owner LLC taxes are on Form1040 with the Internal Revenue Service whereas partnership LLCs, are required to file their business tax returns using Form 1065 with information on the payments made to their individual partners and members.
Using these business tax returns waives away double taxation, paid by most corporations.
The filing of business tax return in case of Corporations is on separate forms depending on the type of corporation. The C Corporation is subject to taxation both at the corporate level and the individual level. Besides the pre-tax income deduction at the corporate level, the shareholders are taxed on the dividends received. For income tax purposes in case of S corp, the individual shareholders of the corporation and taxed at the individual level. However, an S corporation is has to file tax returns separately. However, maximizing business tax deductions will help to save small business taxes.
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