Small Business Taxes for Sole Proprietors:

A sole proprietorship is a business that’s owned and operated by one individual. Because the owner of a sole proprietorship is flying solo, filing taxes under this business structure is relatively simple.

Instead of filing your small business taxes on behalf of the business, as a sole proprietor, you’ll report business income and losses on your personal income tax return. Business profits will be taxed at your personal income tax rate. Sole proprietors must also pay self-employment taxes, which cover the business owner’s medicare and social security obligations.

If you run a sole proprietorship, you’re generally required to file a Schedule C or a Schedule C-EZ with your form 1040 and pay quarterly estimated taxes.

Estimated tax is the method that all businesses use to pay social Security and medicare taxes along with income tax. If you were an employee, you wouldn’t worry about this—your employer would withhold these taxes for you. But as a sole proprietor, you are responsible for making quarterly payments with the estimated tax method.

To figure what you’ll need to pay in self-employment taxes—and if you have to pay quarterly—use Form 1040-ES, Estimated Tax for Individuals.

Small Business Taxes for Partnerships:

Partnerships are businesses operated by two or more owners. Most partnerships are known as general partnerships, but there can also be limited partnerships or limited liability partnerships. Business owners who are a part of the partnership must pay income taxes, self-employment taxes, and quarterly estimated taxes.

If you operate a partnership, the business has to file Form 1065, which is an annual information return that shows the income, deductions, gains, and losses from the business’s operations—but the business itself doesn’t pay any income tax. Partnerships enjoy what’s called “pass-through taxation,” meaning the income is taxed on the owners of the business instead of being subject to corporate tax rates.

To file taxes, owners who are included in the partnership have to file their respective share of the business’s income and losses on their personal tax returns. Each partner’s share of the business’s income and losses is shown on a Schedule K-1.

Small Business Taxes for C-Corporations:

If your small business is structured as a C-corporation, your business is legally separate from you as the owner. C-corporations are subject to what’s called as “double taxation.” To start, C-corporations are subject to a flat income tax rate of 21%. Then, shareholders are taxed on their personal tax returns when profits are distributed as dividends. The primary income tax form for C-corporations is Form 1120.

Shareholders who actively participate in the work of the corporation are considered employees. Only the employee’s salary is subject to self-employment taxes. Dividends are subject to a different dividend tax rate. Many corporations save on self-employment taxes by paying themselves a smaller salary and taking more money out of the company in distributions. There are several other tax advantages to C-corporations as well.

Small Business Taxes for S-Corporations:

S-corporations are pass-through entities like sole proprietorships and partnerships. This means that each shareholders reports business income and losses on their personal tax return, and profits are taxed at the personal income tax rate. An S-corporation files an informational tax return, called Form 1120S, but the business itself doesn’t pay a corporate tax. This allows an S-corporation to avoid double taxation.

Similar to C-corps, S-corps can also divide business income between a salary and dividends. Salary is subject to self-employment taxes, and dividends are not. You can strategically try to save on self-employment taxes by paying yourself a salary. However, the IRS requires you to pay yourself a reasonable salary given your job title, industry, and qualifications. Both C and S-corporations must pay estimated taxes on a quarterly basis.

Small Business Taxes for Limited Liability Companies:

A limited liability company (LLC) is a business entity that keeps the owners legally separate from the company’s debts or liabilities. As the owner of an LLC, you’ll have the liability protection of a corporation with the tax benefits of a sole proprietorship or partnership.

If you operate an LLC, you’ll be subject to pass-through taxation, just as you would be as a partnership. In other words, you won’t be taxed twice like corporations are. Instead, as an owner of an LLC, you’ll make quarterly tax payments on your personal income tax forms. On top of that, you’ll also have to submit Form 1065 each year for informational purposes.

LLCs offer you additional tax flexibility compared to other business entities. From a legal standpoint, you can exist as an LLC. However, from a tax standpoint, you have the option to be taxed as an S-corporation or C-corporation.