Sole Proprietors and Single Member LLC’s

Are you self-employed and operate your business as a sole proprietorship or a single member LLC? Your income and expenses from this type of operation are reported to the IRS using Schedule C, along with supporting tax forms as needed. The net profit is used to calculate the amount of self-employment tax and income tax. The net profit, self employment tax and income tax are reported on your personal tax return, Form 1040. There is one exception.

A single member LLC has the option to file proper paperwork with the IRS to elect taxation as a corporation, typically one known as an S-corporation. If so, the corporation has to file a tax return separate from your personal tax return. The due date for the corporate tax return is about a month before your personal return is due. It is vital to accurate tax reporting to always have your corporate return completed before your personal return as there is financial data that flows from the corporate return onto your personal return. Your S-corporation does not pay income tax on the corporate return. The corporation’s income, some deductions and some credits are reported on the personal return and the tax, if any is due, is part of the personal tax due.

Multiple Member LLC’s, Partnerships, S-Corps

The default tax status of this type of LLC is that of a partnership. The LLC members can file proper paperwork with the IRS to elect a different tax status, usually that of an S-corporation.

The business is required to file it’s tax return first and then issue a tax form, K-1, reporting each partner’s or shareholder’s share of income, deductions and credits that has to be reported on the partner’s personal tax return.