Federal Tax Obligations for Business Entities

LLCs, corporations, and partnerships are all different types of business organizations with different legal and tax obligations. Essentially all businesses pay four types of tax obligations: Income Tax, Estimated Tax, Employment Taxes (which may be self-employment taxes) and Excise Taxes. Here's a quick rundown of the main business entities in the US, and the forms they have to file in the corporate level:

1. LLCs: LLCs (limited liability companies) are a type of business organization that combines the liability protection of a corporation with certain tax flexibilities. The IRS will treat an LLC as a corporation, partnership, or as part of the LLC's owner's tax return, depending on the LLC's election and the number of members. Regardless of this election, LLCs can be classified as:
   1. Single member LLCs: If the LLC only has one member, then members will default as self-employed having to file Schedule C with their personal Form 1040, unless the member files Form 8832, whereby the LLC elects to be taxed as a corporation.
   2. Multi-member LLCs: If the LLC has two or more members, then the LLC is taxed as a partnership by default, unless the LLC files Form 8832, as previously mentioned
2. Partnerships: A partnership is a business or trade relationship formed by two or more people. Each person contributes money, property, labor, or skill, and shares in the company's profits and losses. Partnerships are treated as pass-through entities for tax purposes, which means that profits and losses of the partnership are passed through to the individual partners, who report their share of the partnership's income or loss on their personal tax returns. Generally, partnerships have to: 3. File Form 1065 annually. Although partnerships will not pay taxes, and simply pass-through their results to the members, they still have to file with the IRS yearly. 4. Provide employees with Form W-2. 5. Provide partners with Schedule K-1 (Form 1065), or other Forms depending on certain cases, such as Form B-1 for people or entities who own more than 50% of the partnership.

This chart summarizes other possible tax obligations for a Partnership:

If you are a partnership then you may be liable for:	Forms to fill	Separate Instructions
Income Tax	Form 1065, U.S. Return of Partnership Income	Instructions for Form 1065
Estimated Tax	Form 1040-ES, Estimated Tax for Individuals	Instructions for Form 1040-ES
Employment Tax	Form 941, Employer's Quarterly Federal Tax Return, For farm employees: Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, Federal unemployment (FUTA) tax: Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, Employment taxes: Depositing and Reporting Employment Taxes	Instructions for Form 941, Instructions for Form 943, Instructions for Form 940
Excise Tax	Check Excise Tax Webpage

3. Corporations: Corporations are legal entities that exist independently of their shareholders. Corporations are taxed separately, with profits taxed at the corporate level. Double taxation is possible with Corporations, so dividends received from the corporation are also taxed to shareholders. Generally, Corporations have to: 6. File Form 1120 yearly. 7. Pay all applicable employment taxes. This chart from the IRS helps to summarize all tax obligations that may be applicable:

If you are a corporations then you may be liable for:	Forms to fill	Separate Instructions
Income Tax	1120, U.S. Corporation Income Tax Return	Instructions for Form 1120 U.S. Corporation Income Tax Return
Estimated Tax	1120-W, Estimated Tax for Corporations	Instructions for Form 1120-W
Employment Tax	Form 941, Employer's Quarterly Federal Tax Return, For farm employees: Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, Federal unemployment (FUTA) tax: Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, Employment taxes: Depositing and Reporting Employment Taxes	Instructions for Form 941, Instructions for Form 943, Instructions for Form 940
Excise Tax	Check Excise Tax Webpage

S-Corp status

An S-Corporation, also known as a S-Corp, is a type of business entity that is taxed as a pass-through entity in the United States regardless of the type of business entity it is. S-Corporations, in essence, help to avoid double taxation on corporate income. S-corporations are taxed at the entity level on certain built-in gains and passive income.

To be eligible for S-Corporation status, the corporation must meet the following criteria:

• Be a domestic company.
• Have only permitted shareholders.
• Individuals, trusts, and estates may qualify.
• Partnerships, corporations, and non-resident alien shareholders are not permitted.
• Have a maximum of 100 shareholders.
• Have only one type of stock.
• It must not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).

If the business entity complies with all the previous requirements, then it may file Form 2553, (Election by a Small Business Corporation), which must be signed by all shareholders. Once the business has the status of an S-Corporation, then it will have to complete Form 1120-S yearly, along with all the other applicable tax forms. To learn more about the tax obligations of an S-Corp, visit the IRS website on them.

Here's a quick summary of the income tax obligations for the main US business entities:

	LLCs	Partnerships	Corporations
Type of Taxation	Pass-Through	Pass-Through	Double-Taxation
Main Forms (Only for Income Taxes)	Schedule C with Form 1040 for single member LLCs.	Form 1065	Form 1120
Date of Filing	Around March 15th	Around March 15th	Around April 15th
Number of Members	Single member or more	Two or more	Single shareholder or more

Remember that all business entities may be liable for other types of taxes such as Estimated Tax, Employment Taxes, and Excise Taxes. Always contact a professional to help you file your business's taxes. Here's the average cost of tax preparation, according to the National Society of Accountants on their latest report on the Income and Fees of Accountants and Tax Preparers in Public Practice Survey 2019-2021:

Average Cost of Tax Preparation 2019-2021

Individuals filing Form 1040(non-itemized) with a state tax return	$220
Individuals filing Form 1040 with Schedule A and a state tax return	$323
Filing Form 940 (non-itemized) with a state tax return	$78
Farms filing Form 1040 with Schedule F	$200
Those with rental real estate filing Form 1040 with Schedule E	$145
Businesses filing Form 1040 with Schedule C	$192
Corporations filing Form 1120	$913
S-Corporations filing Form 1120S	$903
Partnerships filing Form 1065	$733
Fiduciary filing Form 1041	$576