Taxsoftware.com’s Guide To Business Tax Forms
Sometimes the most difficult part of tax filing is picking the right
form to file. It’s not easy to keep track of the difference between
partnerships and limited liability corporations, S corporations or sole
proprietorships. With this in mind, we offer here our first Guide To
Business Tax Forms to help business owners and their tax preparers
find the right form fast—and e-file hassle-free with Taxsoftware.com.
Forms of Ownership
Determining how to structure a company is a business owner’s first order
of business. The form of ownership the company takes has an impact
beyond the size and nature of the business and the level of control of
the proprietor. Each ownership structure has different tax implications
The characteristics of the different forms of ownership are discussed
below, as well as the tax requirements for each style of company. If
this review leads you to question the current structure of the business
you have, consult an accountant and attorney to help you find a better
fit for your company.
The vast majority of small businesses start out as sole proprietorships. The sole proprietorship is a simple, informal structure that is
inexpensive to form. These firms are owned by one person or a marital
community, usually the individual who has day-to-day responsibilities
for running the business. Sole proprietors own all the assets of the
business and the profits generated by it. They also assume complete
responsibility for any of its liabilities or debts, can freely transfer
all or part of the business, and can report profit or loss on personal
income tax returns. In the eyes of the law and the public, you are one
and the same with the business.
Advantages of a Sole Proprietorship
Easiest and least expensive form of ownership to organize.
Sole proprietors are in complete control, and within the parameters of
the law, may make decisions as they see fit.
Sole proprietors receive all income generated by the business to keep or
Profits from the business flow directly to the owner's personal tax
The business is easy to dissolve, if desired.
Disadvantages of a Sole Proprietorship
Sole proprietors have unlimited liability and are legally responsible
for all debts against the business. Their business and personal assets
are at risk.
May be at a disadvantage in raising funds and are often limited to using
funds from personal savings or consumer loans.
May have a hard time attracting high-caliber employees or those that are
motivated by the opportunity to own a part of the business.
Some employee benefits such as owner's medical insurance premiums are
not directly deductible from business income (only partially deductible
as an adjustment to income).
Sole Proprietorship Tax Forms
Quick List of Federal Tax Forms for Sole Proprietorship
(only a partial list and some may not apply)
Form 1040: Individual Income Tax Return
Schedule C: Profit or Loss from Business (or Schedule C-EZ)
Schedule SE: Self-Employment Tax
Form 1040-ES: Estimated Tax for Individuals
Form 4562: Depreciation and Amortization
Form 8829: Expenses for Business Use of your Home
Employment Tax Forms
If you are the sole member of a domestic limited liability
company (LLC), you are not a sole proprietor if you elect to
treat the LLC as a corporation.
If you are a sole proprietor use the information in the chart
below to help you determine some of the forms that you may be
required to file.
IF you are liable for:
THEN use Form:
Schedule C or
Social Security and Medicare taxes and income tax
8109 (to make deposits)
Providing information on Social Security and Medicare
taxes and income tax withholding
W-2 (to employee)
W-3 (to the Social
Federal unemployment (FUTA) tax
8109 (to make deposits)
Filing information returns for payments to nonemployees
and transactions with other persons
Refer to the
Excise Tax web page
a partnership, two or more people share ownership of a single business.
Like with proprietorships, the law does not distinguish between the
business and its owners. The partners should have a legal agreement that
sets forth how decisions will be made, profits will be shared, disputes
will be resolved, how future partners will be admitted to the
partnership, how partners can be bought out, and what steps will be
taken to dissolve the partnership when needed.
Partnerships are inexpensive to form; they require an agreement between
two or more individuals or entities to jointly own and operate a
business. Profit, loss, and managerial duties are shared among the
partners, and each partner is personally liable for partnership debts.
Partnerships do not pay taxes, but must file an informational return;
individual partners report their share of profits and losses on their
personal return. Short-term partnerships are also known as joint
Advantages of a Partnership
Partnerships are relatively easy to establish; however time should be
invested in developing the partnership agreement.
With more than one owner, the ability to raise funds may be increased.
The profits from the business flow directly through to the partners’
personal tax returns.
Prospective employees may be attracted to the business if given the
incentive to become a partner.
The business usually will benefit from partners who have complementary
Disadvantages of a Partnership
Partners are jointly and individually liable for the actions of the
Profits must be shared with others.
Since decisions are shared, disagreements can occur.
Some employee benefits are not deductible from business income on tax
The partnership may have a limited life; it may end upon the withdrawal
or death of a partner.
Types of Partnerships
Partners divide responsibility for management and liability as well as
the shares of profit or loss according to their internal agreement.
Equal shares are assumed unless there is a written agreement that states
Limited Partnership and Partnership with limited liability
Limited means that most of the partners have limited liability (to the
extent of their investment) as well as limited input regarding
management decisions, which generally encourages investors for
short-term projects or for investing in capital assets. This form of
ownership is not often used for operating retail or service businesses.
Forming a limited partnership is more complex and formal than that of a
Acts like a general partnership, but is clearly for a limited period of
time or a single project. If the partners in a joint venture repeat the
activity, they will be recognized as an ongoing partnership and will
have to file as such as well as distribute accumulated partnership
assets upon dissolution of the entity.
Corporations should always be assisted by a qualified attorney.
Advantages of a Corporation
Shareholders have limited liability for the corporation's debts or
judgments against the corporations.
Generally, shareholders can only be held accountable for their
investment in stock of the company. (Note however, that officers can be
held personally liable for their actions, such as the failure to
withhold and pay employment taxes.)
Corporations can raise additional funds through the sale of stock.
corporation may deduct the cost of benefits it provides to officers and
Corporations can elect S corporation status if certain requirements are
met. This election enables company to be taxed similar to a partnership.
Disadvantages of a Corporation
The process of incorporation requires more time and money than other
forms of organization.
Corporations are monitored by federal, state, and some local agencies,
and as a result may have more paperwork to comply with regulations.
Incorporating may result in higher overall taxes. Dividends paid to
shareholders are not deductible from business income; thus it can be
Limited Liability Company (LLC)
The LLC is a relatively new type of hybrid business structure that is
now permitted in most states. The LLC is generally considered
advantageous for small businesses because it combines the limited
personal liability features of a corporation and the tax efficiencies
and operational flexibility of a partnership or sole proprietorship.
Profits and losses can be passed through the company to its members or
the LLC can elect to be taxed like a corporation. LLCs do not have stock
and are not required to observe corporate formalities.
Formation is more complex and formal than that of a general partnership.
The owners are members, and they or appointed managers manage the LLC.
Since most states do not restrict ownership, members may include
individuals, corporations, other LLCs and foreign entities. There is no
maximum number of members. Most states also permit “single member” LLCs,
those having only one owner.
few types of businesses generally cannot be LLCs, such as banks,
insurance companies and nonprofit organizations. Check your state’s
requirements and the federal tax regulations for further information.
There are special rules for foreign LLCs.
The duration of the LLC is usually determined when the organization
papers are filed. The time limit can be continued, if desired, by a vote
of the members at the time of expiration.
LLCs must not have more than two of the four characteristics that define
corporations: Limited liability to the extent of assets, continuity of
life, centralization of management, and free transferability of