Wes Hamilton offers the following royalty-free article for you to publish online or in print. Feel free to use this article in your newsletter, website, ezine, blog, or forum. ----------- PUBLICATION GUIDELINES - You have permission to publish this article for free providing the "About the Author" box is included in its entirety. - Do not post/reprint this article in any site or publication that contains hate, violence, porn, warez, or supports illegal activity. - Do not use this article in violation of the US CAN-SPAM Act. If sent by email, this article must be delivered to opt-in subscribers only. - If you publish this article in a format that supports linking, please ensure that all URLs and email addresses are active links. - Please send a copy of the publication, or an email indicating the URL to [email protected] - Article Marketer (www.ArticleMarketer.com) has distributed this article on behalf of the author. Article Marketer does not own this article, please respect the author's copyright and publication guidelines. If you do not agree to these terms, please do not use this article. ----------- Article Title: Small Business Taxes - How to Avoid IRS Penalties Author: Wes Hamilton Category: Entrepreneurship Word Count: 579 Keywords: business,entrepreneurship,business plan,taxes,small business Author's Email Address: [email protected] Article Source: http://www.articlemarketer.com ------------------ ARTICLE START ------------------
If you own a small business, you must understand the basics of business entities and the income tax return requirements for each. Here's a crash course to get you started. It's critical that you know what type of entity you have and what type of tax return must be filed. Failure to file the proper tax return on time can result in IRS penalties and interest. Sole Proprietorship If your business is not a partnership, corporation, or LLC, then by default you are a sole proprietorship. From both a legal and tax standpoint, there is no distinction between you and the business, so you have unlimited liability. You report the business on your personal income tax return (Form 1040) via a special form called Schedule C. Several other forms may also be required on your personal return, depending on the complexity of your business and the nature of its operations. Partnership A partnership is an agreement between two or more persons to carry on a business. Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. A partnership must file an annual income tax return to the IRS (Form 1065) to report the income, deductions, gains, losses, etc., from its operations, but the partnership does not pay income tax. Instead, it "passes through" any profits or losses to its partners via a form called Schedule K-1. Each partner includes his or her share of the partnership's income and expenses (as reported on the K-1) on his or her personal tax return. Corporation For tax purposes, there are two main types of corporations: the C corporation and the S corporation. When you form a corporation according to the laws of your particular state, the IRS automatically assumes you are a C corporation for tax purposes. To become an S corporation, you have to apply for S corporation status via a special application (Form 2553), which the IRS will accept if you meet the criteria to become an S corporation. From a tax standpoint, there are significant differences between a "C" corp and an "S" corp. C Corporation. The profit of a C corporation is taxed twice -- once to the corporation and a second time to the shareholders when distributed as dividends. (This is the dreaded "double taxation of corporate profits"). However, shareholders cannot deduct any losses of the corporation. The C corporation files Form 1120 to report its income and expenses to the IRS. S Corporation. If your business qualifies, it can avoid double taxation by becoming an S corporation. An S corporation generally is exempt from federal income tax, but still must file an income tax return called Form 1120S. The income or loss of the S corporation is transferred from the corporation to the individual shareholder's personal income tax returns via Schedule K-1, which the corporation must give to each shareholder. Limited Liability Company (LLC) This is the newest kind of entity. From a legal standpoint, the LLC is much like a corporation, offering limited liability to the owners (which are called "members"). From a tax standpoint, the LLC is like a chameleon --- it can be taxed however it wants to be taxed, provided the proper paperwork is filed with the IRS. If there is only one owner/member, the LLC can be taxed like a sole proprietorship, a C corporation, or a S corporation. If there are two or more owners/members, the LLC can be taxed like a partnership, a C corporation, or a S corporation. Wes Hamilton is the owner of PLUMB PRO, INC a full service plumbing company in Alabama. Visit our website for more Free Information and PICTURES. Visit http://www.plumbpro.net/ and http://www.plumbproinc.com/ ------------------ ARTICLE END ------------------ [Non-text portions of this message have been removed]
