Benjamin Franklin once said, "... in this world nothing is certain but death and taxes." For a business, both are certain and very important-death, as it relates to business estate planning, and taxes, which are a yearly obligation. This fact sheet contains information about the more common federal taxes that apply to businesses.
Every business must file an annual income tax return. Which form you use depends on how your business is organized.
A proprietorship is an individual conducting a business enterprise. A sole proprietor usually reports business income or losses on Schedule C and attaches it to the individual IRS Form 1040. Schedule C contains a detailed listing of income and expenses. Business expenses are subtracted from business income to determine a net profit or loss. This net profit or loss is carried forward to Form 1040.
A partnership consists of two or more individuals conducting a business. The partnership files IRS Form 1065 showing income, expenses and net profit or loss but pays no tax. The net figure is divided among the partners in proportion to their interest in the business and reported on Schedule K-1. This is then carried forward on the individual's 1040 tax return.
A corporation is treated for tax purposes as a single unit. The corporation files its own tax return, usually IRS Form 1120 or 1120A, and pays the tax due. Individuals involved in the corporation receive salaries and/or dividends and report both on IRS Form 1040.
A corporation can make a special election to be taxed under Sub-Chapter S of the Internal Revenue Code. This means the corporation pays no income tax. Instead the income of the corporation is distributed among the shareholders as if it were a partnership. IRS Form 1120S should be used.
The purpose of a self-employment tax is to provide self-employed persons such as a sole proprietorship or general partners in a partnership with social security coverage. Schedule SE, which is filed with IRS Form 1040, is used to figure self-employment tax. The amount of self-employment tax paid is determined by the tax rate and net earnings of the business person.
If the business has one or more employees, various employment taxes may be required. These could include: 1) the federal income tax withheld from your employees' wages; 2) social security (FICA) tax, both the amount withheld from employees' wages and the amount paid as an employer; 3) federal unemployment (FUTA) tax. Social security (FICA) and withheld income taxes are reported together quarterly on IRS Form 941. See Circular E, Employer's Tax Guide, IRS Publication 15 for deposit rules.
Federal Unemployment Tax (FUTA) is reported and paid separate from FICA and withheld income tax. IRS Form 940, an annual return, is used to report FUTA tax. Quarterly deposits are required if unpaid tax exceeds $100. For more information on FICA, FUTA and income tax withholdings, see Circular E, Employer's Tax Guide, IRS Publication 15.
The federal government imposes excise taxes on certain business activities. Most businesses would not pay an excise tax. To be sure, check IRS Publication 510, Excise Taxes. There are various excise taxes relating to the manufacture and selling of alcoholic beverages, tobacco and firearms. For information, write the Director, Bureau of Alcohol, Tobacco and Firearms, Washington, D.C. 20226.
There are also federal taxes on the use of highways by certain trucks, truck tractors and buses. Generally, pickup and panel trucks are not subject to the tax. For more information, see IRS Publication 349, Federal Highway Use Tax on Heavy Vehicles.
This limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed. The 50% limit applies to business meals or entertainment expenses incurred while:
| You May Be Liable For | If You Are | Use Form | Due On or Before | ||||||||||||
| Income tax |
|
|
|
||||||||||||
| Estimated tax |
|
|
|
||||||||||||
| Annual return of income | Partnership | 1065 | 15th day of 4th month after end of tax year | ||||||||||||
| Social Security and Medicare taxes (FICA) and the withholding of income tax | Sole proprietor, corporation, S corporation, or partnership |
941 8109 (to make deposits) |
4-30, 7-31, 10-31, and 1-31 See Chapter 34, IRS Pub. 509 |
||||||||||||
| Providing information on Social Security and Medicare taxes (FICA) and the withholding of income tax | Sole proprietor, corporation, S corporation, or partnership |
W2 (to employee) W2 and W3 (to Social Security Administration) |
1-31 Last day of February |
||||||||||||
| Federal unemployment (FUTA) tax | Sole proprietor, corporation, S corporation, or partnership |
940 or 940EZ 8109 (to make deposits) |
1-31 4-30, 7-31, 10-31, and 1-31, but only if the liability for unpaid tax is more than $100 |
||||||||||||
| Information return for payments to nonemployees and transactions with other persons | Sole proprietor, corporation, S corporation, or partnership |
See Chapter 37, IRS Pub. 509 | Forms 1099-to the recipient by 1-31 and to the Internal Revenue Service by 2-28
Other forms-See Chapter 37, Pub. 509 |
||||||||||||
| Excise taxes | Sole proprietor, corporation, S corporation, or partnership |
See Chapter 36, IRS Pub. 509 | See instructions to the forms | ||||||||||||
| Selfemployment tax | Sole proprietor, or individual who is a partner | Schedule SE (Form 1040) | Same day as Form 1040 |
All educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status.
Keith L. Smith, Associate Vice President for Ag. Adm. and Director, OSU Extension.
TDD No. 800-589-8292 (Ohio only) or 614-292-1868