Business taxpayers must file and pay many different types of taxes. The two most common taxes paid by businesses are income taxes and employment (payroll) taxes on their employees. Businesses may also be liable for excise and other specialty taxes, depending on their industry.
Self-Employed Taxpayers
Most self-employed taxpayers pay their business taxes on their personal income tax returns. For example, sole proprietors report their business income and deductions on their personal return on Schedule C, Profit/Loss from a Sole Proprietorship. If the self-employed taxpayer creates an entity, such as a corporation or a limited liability company, they can elect to report their business income and deductions at the entity level. If there is one owner of the entity, they can report the income on Schedule C, as a corporation (Form 1120), or as an S corporation (Form 1120-S), depending on what the entity selects.
Multiple Business Owners
If there is more than one business owner, the entity may elect to be a corporation or an S corporation. If an election is not made, the multiple owners will be treated as a partnership.
Business Tax Filing
Businesses can file different tax forms depending on their entity status, the number of owners, and IRS rules. Here is a summary of business tax forms, the entity type, and the type of taxes paid:
| Form | Common Business Type | Taxes Paid |
|---|---|---|
| Form 1040, Schedule C | Sole proprietorship, Individual, Single member entity, like an LLC without an election to be treated as S or C corporation | Income taxes, Self-employment taxes, Employment taxes (if they have employees), Other specialty taxes, if applicable |
| Form 1120 | Corporation, Incorporated entity, Entity electing corporation status (Form 8832) | Income taxes, Employment taxes (if they have employees), Other specialty taxes, if applicable |
| Form 1120S | Entity, such as a corporation or LLC, that elects S corporation status (Election on Form 2553) | Employment taxes (if they have employees), Other specialty taxes, if applicable, and other taxes such as “built-in gains” taxes. Income taxes are paid at shareholder/partner level |
| Form 1065, US Partnership Return | Includes a limited partnership, syndicate, group, pool, joint venture, or other unincorporated organization, through or by which any business, financial operation, or venture is carried on and is NOT a corporation, trust, estate, or sole proprietorship | Employment taxes (if they have employees), Other specialty taxes, if applicable, and other taxes such as “built-in gains” taxes. Income taxes are paid at shareholder/partner level |
| Form 941, Employer’s QUARTERLY Federal Tax Return | All employers (small employers with annual payroll taxes under $1,000 may be able to file an annual Form 944 in lieu of quarterly Form 941 filings. However, they must receive permission first from the IRS) | Quarterly filing with federal tax deposits made on the deposit schedule. Employment taxes (FICA and Medicare) |
| Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return | All employers except section 501(c)(3) organizations | Annual filing with federal tax deposits made on the deposit schedule. Employment taxes (unemployment – note: not State unemployment) |
Navigating the landscape of business taxes can be complex, but understanding the different tax forms and filing requirements is essential for compliance and financial health. In addition to income and payroll taxes, businesses often have to file other returns, such as Forms W-2 and 1099, to report employee wages and payments to other third parties like their contractors. By staying informed and organized, businesses can effectively manage their tax obligations and take advantage of available deductions and credits.