IRS Business Tax Help

Income Tax

If you are self-employed, all business income will be treated as your personal income, just as if you were employed. Partnerships are not taxed as separate entities, although they must file a return, and all partnership income is attributed to individual partners in proportion to their share in the partnership. Limited liability companies (LLCs) are taxed as partnerships unless they elect corporate taxation. Corporations can be taxed in two ways --- an S corporation is not taxed separately except on some forms of passive income, although income is attributed to shareholders even if it is not distributed. Corporations not eligible for S corporation status are taxed as separate entities at corporate tax rates, but corporate shareholders are not taxed on corporate income until it is actually distributed to them.

Businesses may deduct almost all of overhead from taxable income, although slight variations apply depending on how the business is organized. Advertising expenses, payroll, employee training, travel and business entertainment expenses are examples of expenses that may be fully or partially deducted. Although it may be generally accurate to say that only a business's profits are taxed, the IRS calculation of business profits may differ from profits calculated using the Generally Accepted Accounting Principles (the GAAP).

If your business is an employer, it must withhold 5.65 percent of its employee paychecks for Medicare and Social Security (as of 2011). It must also pay a 7.65 percent employment tax based on the amount of employee paychecks, out of its own funds. If you are self-employed, you must pay a 13.3 percent self-employment tax instead.

If you are self-employed, you must file quarterly estimated tax returns using Form 1099, and pay taxes every three months. By April 15, you must file Form 1040 and Schedule C. Partnerships file the Form 1065 informational tax return, along with Schedule K-1, and must distribute copies of Schedule K-1 to partners. LLCs must file tax returns according to the type of taxation they have elected. S corporations file Form 1120S, and other corporations file Form 1120.