Anne-Marie Saint-John, Alva, Long Island City, NY >

Taxes for Different Business Structures

C Corporation

A C corporation must file a declaration of income tax at the end of the year. In addition, if the difference between income tax and credits is expected to be $500 or more, the corporation must make estimated tax payments as it earns or receives income during its tax year. Failure to pay a fee when due may cause the corporation to be subject to a penalty for non-payment.

S Corporation

An S corporation does not pay income tax but passes income and expenses to its shareholders. They report this income on their own income tax returns.

Sole Proprietorship

Unlike a corporation, a sole proprietorship is not considered separate from its owner for tax purposes. This means that the sole proprietorship itself does not pay income taxes. Instead, the owner reports the business income or loss on his individual income tax return. Note that all business income is taxed to the owner in the year the business receives it, whether or not the owner withdraws the money from the business.

The owner of a sole proprietorship is personally responsible for the full amount of any obligations related to the business, such as debts or court decisions. This means that business creditors may come after the owner’s personal assets, home, or car to collect what the business owes them. Sole proprietors use the C or C-EZ program for income tax purposes.

Limited Liability Companies.

An LLC company is not a separate tax entity like a corporation; it is what the SRI calls a “pass-through entity,” like a partnership or sole proprietorship. All LLC profits and losses “pass through” the business to the LLC owners (called members), who report this information on their personal tax returns. The LLC itself does not pay federal income taxes, but some states do charge the LLC an annual state tax.

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