Filing Personal and Business Taxes Separately: A Small Business Guide
How you file your business taxes with the IRS depends on your business’s structure. Some structures, like corporations, must file their business taxes separately from their personal taxes. Other structures, like sole proprietorships, must report their business income on their personal taxes.
Below we’ll look at how each type of small business must file their taxes.
In this article, we’ll cover:
NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.
Can I File My Personal and Business Taxes Separately?
You can only file your personal and business taxes separately if your company it is a corporation, according to the IRS. A corporation is a business that’s seen as an entity separate from its owner(s) that pays its own tax. Corporations file their taxes using Form 1120.
Limited liability companies (LLCs) can also choose to be treated as a corporation by the IRS, whether they have one or multiple owners. In that situation, they must also file their taxes using Form 1120, which means the owners must file their personal and business taxes separately.
All other business structures must report their income or losses via the owner or owners’ personal tax returns. We’ll look at each structure’s tax reporting obligations below.
A sole proprietorship is an unincorporated business that has a single owner. Sole proprietors report their business income or losses on their personal tax return by using Form 1040. They must also file Schedule C (Form 1040) to report the profit and loss from their business. Filing taxes as a sole proprietor is a fairly straightforward affair.
The IRS considers people self-employed if they are sole proprietors (see above), an independent contractor or in business for yourself in any other way, even part-time.
The reporting rules are the same as with sole proprietors: report business profits and losses on your personal income tax return (Form 1040) as well as Schedule C. You can’t file your business taxes separately from your personal taxes.
A partnership is a business owned by two or more people. These people share in the profits and losses of the business and contribute labor, skill, property or money. Partners report their share of the business’s profits or losses on their personal income tax return (Form 1040), according to the IRS.
The partnership must also file an information return, Form 1065. But the business itself doesn’t pay taxes based on this information return, the partners do via their personal tax return.
Limited Liability Companies (LLC)
LLCs are business structures that are regulated by each individual state. Owners of LLCs are called members and most states permit LLCs to only have one owner. LLCs with two or more members are classified as partnerships unless they elect to be treated as a corporation. LLCs with one member is treated an an entity disregarded from its owner, unless it asks to be treated as a corporation. If an LLC hasn’t elected to be treated as a corporation, the profit or loss will be reported on the owners personal tax return.
As we covered above, corporations can file their business taxes separately. Partnerships and disregarded entities must file their business taxes via their personal tax return (Form 1040).
LLCs can ask to be treated as corporations, or otherwise change their status, by filing Form 8832.
People also ask:
- Can You File LLC Business Taxes with Personal Taxes?
- What Is the LLC Tax Rate for 2018?
- How to File Taxes for an LLC with No Income
Can You File LLC Business Taxes with Personal Taxes?
Yes, you can file LLC business taxes with your personal taxes unless you ask for the LLC to be treated as a corporation.
LLCs can ask the IRS to treat them as a corporation, partnership, or disregarded entity by filing Form 8832, if their default status is otherwise.
What Is the LLC Tax Rate for 2018?
The LLC tax rate for 2018 is 21 percent for LLCs that have elected to be treated as corporations, according to Greenbush Financial Group.
That said, many LLCs are taxed as pass-through entities, not corporations, and they are not taxed this flat rate of 21 percent.
Pass-through entities are businesses where the profits or losses of a business are reported on the owner(s) personal income tax return. This means that these owners are taxed at standard income tax rates.
The IRS has a list of the 2018 rates. For example, if you have taxable income of $38,701 to $82,500, your tax rate is $4,453.50 plus 22 percent of the amount over $38,700.
That said, starting in 2018, many pass-through small business owners will only be taxed on 80 percent of their pass-through income.
This free online LLC tax calculator will help you calculate your 2018 taxes.
How to File Taxes for an LLC with No Income
How an LLC files its taxes when it had no income for that tax year depends on its business structure.
An LLC that is treated as a corporation by the IRS must still file an income tax return using Form 1120, unless they are exempt under section 501. Exempt organizations include charities and religious organizations, according to the IRS.
If an LLC is treated as a disregarded entity by the IRS, they must still report their lack of income via Schedule C (Form 1040).