Which Income Tax Form Should You Use?
Each type of business entity commands its own federal income tax return. You should
with a tax professional to find out which type of tax return you need to file and, for that matter, which type of business entity is best for your company. Here are the various federal business income tax forms at a glance:
Use this form if you are a tax-exempt organization. Tax-exempt organizations are usually those in the business of helping others. The IRS must give approval to your exempt status. Organizations that qualify for exempt status typically include organizations that are charitable, educational, scientific, religious, or
. The only income on which this type of organization pays income tax is income not
to the reason for the exempt status.
Private foundations use this form. A private foundation is usually a tax-exempt entity that is controlled by an individual or a family. Strict rules apply to this type of tax-exempt organization.
Tax-exempt organizations that have a profitable business not related to the exempt purpose of the organization are required to report the tax information from their profitable business on this form.
This is the tax form used by individuals. If your business is a sole proprietorship or another type of business, such as some limited liability corporations, that is not required to file a separate business tax return, your business income and expenses are
on your 1040. Most commonly, people who report business activity on their 1040s use an
Schedule C to summarize their business transactions.
Use this form if you are a partnership. Partnerships are similar to S corporations in that your share of the company's net income or loss is passed through to you and taxed on your individual tax return (1040). Limited liability corporations with more than one member also use a Form 1065.
Taxable corporations use this form to report their business activity. Corporations are taxed at their own rates and are liable for their own
Some corporations are
as S corporations. Instead of being taxed at corporate income tax rates, the income or loss of an S corporation is passed through to its
, much like a partnership, and taxed on the individual tax returns.