One of the most notable and important changes that our country is facing under the tax reform is how taxes are being handled for businesses. Different than the changes to individual taxes, that are less permanent and somewhat fragmented, the changes we are seeing to how business taxes will be handled seem to be more permanent and fully fleshed out.
There are countless numbers of changes that have come with this new tax reform, too many to cover all at once, so here is a list of some of the main changes how how they will impact pass-through entities and small businesses:
-A sole proprietorship is one the most basic forms of a business entity. Taxpayers do not file a separate tax return because business income and expenses are reported on a federal form 1040, Schedule C.
-A partnership is formed whenever an association of two or more persons decide to carry on a business and can take a few different forms (like limited or general partnerships). A partnership files a separate return, a federal form 1065, and passes income and losses to the individual partners who are responsible for reporting that information on their individual tax returns.
-A Limited Liability Company (LLC) is a hybrid entity that offers the option to be taxed as a partnership or a corporation.
-A Single Member Limited Liability Company is an LLC with a single member, typically treated as a “disregarded entity” for federal tax purposes because of this there is no separate tax form and income and expenses are reported on a Schedule C.
-A C corporation is what comes to mind for most people when they think of a business. A C corporation files a federal form 1120 and pays all taxes that are due. Shareholders also pay tax at their individual income tax rates for dividends or other distributions from the company.
-A Professional or Personal Service Corporation is a corporation for certain occupations – typically service professionals veterinarians, lawyers, builders, etc.
-An S Corporation is a corporation with tax treatment comparable to a partnership. An S corporation files a federal form 1120-S which passes the bulk of items of income or loss to shareholders who are responsible for reporting that information on their own individual tax returns.
Sandra King Enrolled Agent
Sandra King is an enrolled agent, empowered by The United States Treasury to prepare your personal or business tax filing. You may learn more about enrolled agents in Treasury Department Circular 230(PDF).
Before you call one of the large advertisers claiming to solve your problems for pennies on the dollar, take the time to talk to your trusted, local tax expert. We solve IRS tax problems locally and in every state.
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