Key Takeaways:

  • The way you file your business and personal taxes depends on your business structure and how it is recognized by the IRS.
  • Sole proprietors and single-member LLCs must file business income using Schedule C along with their personal taxes, unless opting to be taxed as a corporation.
  • Partnerships and S corporations require different forms (e.g., Form 1065 for partnerships, Form 1120-S for S corporations), with personal taxes still involved through K-1 statements.
  • Married couples should carefully weigh the pros and cons of filing taxes jointly, as it can impact eligibility for credits like the child tax credit and earned income credit.
  • The IRS recognizes corporations, partnerships, and sole proprietors, though LLCs must choose how they will be taxed at the federal level.

If you're asking yourself can I file my business and personal taxes separately, you need first to understand the basics of taxes. The type of return that you are going to file is going to be based on two primary factors. First, it's based on the way your business is organized. Secondly, it depends on how you incorporate your company with the IRS.

How Are Business and Personal Taxes Filed?

As a sole proprietor, you will have to file the income you acquire from your business on a Schedule C form. This form is filed along with your personal income taxes. If you file this way, you cannot file a tax return for your business separately. The same applies if you're a single member of a limited liability company, also commonly referred to as an LLC. The only way you would not file your income and expenses from your business on the Schedule C form is if you choose to file as a corporation.

If you are a partner in a business, you will need to file Form 1065, which is known as the Return of Partnership Income document. You will receive a K-1 from the partnership, and this will be reported on your personal income taxes.

Pass-through entities, also known as S corporations, file their taxes differently. All profits and losses from the business are passed down through the shareholders; these profits and losses are reported on a personal income tax return but not using a Schedule C. Instead, a Schedule E is used. This allows for any taxes owed to be paid according to your individual tax rate.

If an S Corporation has a sub-chapter and you are a shareholder of it, you will need to complete Form 1120-S, which serves as an income tax return for S Corporations. After you file this form, you will then receive a K-1 from the S Corporation, and this K-1 is reported on your personal tax return.

The amount of profits and losses that go to you as a shareholder in an S Corporation depends on the amount of the company that you own. For example, if you own half, then half of the expenses along with half of the losses and half of the profits must be reported by you. If you own a fourth, then only a fourth of the losses, a fourth of the profits, and a fourth of the expenses are to be reported by you.

The same thing that applies to an S Corporation applies to a regular Corporation. As a shareholder of a regular Corporation, you file an 1120 form and then receive a K-1 from the company and then report the K-1 on your personal taxes. The only difference is you file an 1120 form instead of an 1120-S.

Corporation and LLC Tax Filing Options

For corporations, the process of filing taxes is more distinct from personal taxes. A regular corporation (C Corporation) files a separate business tax return using Form 1120, which reports business income, deductions, and tax payments. Shareholders of C corporations report dividends from the corporation on their personal tax returns, but they do not report business profits or losses directly.

Limited Liability Companies (LLCs), on the other hand, have flexibility in choosing their tax structure. If your LLC is a single-member entity, you will file taxes similarly to a sole proprietor, reporting business income on your personal tax return through Schedule C. However, multi-member LLCs are generally treated as partnerships and file Form 1065, while members receive K-1s for their personal tax filings. Alternatively, an LLC can elect to be taxed as a corporation by filing Form 8832. This option might be suitable for those who want to keep business and personal taxes separate.

Should I File My Business Tax Jointly With My Spouse's Taxes?

If you are married, you are probably wondering whether to file a joint or separate return for your business. The choice is up to you, but there are several tips you can follow to help you make the best choice. First, keep in mind that when you file a joint return, both you and spouse will be 100% individually responsible for any due taxes. If your spouse has any type of past-due tax debt and you were to file jointly and receive a refund, the refund will be kept and will be applied to the tax debt.

On the other hand, if you were not to file jointly, this means you forfeit several tax credits, including:

  • Child tax credit
  • Earned Income Credit

This means you might forfeit being able to acquire several thousand dollars back in a refund. The child tax credit, of course, is only applicable to you if you have a child in your care that depends on you for the majority of his or her financial well-being.

Impact of Filing Status on Business and Personal Taxes

Filing status significantly impacts your tax situation, especially for small business owners. Filing jointly as a married couple can allow access to valuable tax benefits such as a higher standard deduction, the child tax credit, and the earned income credit. However, if one spouse has a significant amount of past-due debt (such as back taxes or student loans), the IRS may seize the tax refund from a joint filing to cover the debt.

For business owners, the decision to file jointly or separately requires considering both the personal tax implications and the business structure. For example, S corporation shareholders will file Form 1120-S for the business, and profits flow to their individual returns via K-1 forms. In these cases, filing separately may not prevent shared responsibility for tax liabilities​.

What Types of Business Structures Does the IRS Recognize?

The IRS recognizes only three types of business structures:

  • Corporations
  • Partnerships
  • Sole Proprietors

Some states recognize LLCs, but the federal government does not. If you are operating an LLC, it is up to you and any members how the company will be taxed. If you are operating a single-member LLC, you can either have your company taxed as a corporation or a sole proprietorship.

Tax Types and Their Impact on Business Filing

In addition to recognizing different business structures, the IRS identifies several types of taxes that businesses may be required to pay:

  1. Income Tax: All businesses, except partnerships, must file an annual income tax return. Partnerships pass their profits to the partners, who then file personal returns.
  2. Self-Employment Tax: If you work for yourself, the self-employment tax applies. This tax covers Social Security and Medicare contributions.
  3. Employment Taxes: If your business has employees, you are responsible for paying employment taxes, including federal income tax withholding, Social Security, Medicare taxes, and federal unemployment tax (FUTA).
  4. Excise Tax: Some businesses are required to pay excise taxes on the sale of specific goods or services, such as fuel or transportation

Understanding these tax types helps business owners plan and ensure compliance with IRS regulations throughout the year.

 

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