Solitary Proprietorship- Form 1040 filing with Pricing C
To be precise, a sole proprietorship is a business which is owned by a single individual only. In other words, there is a single owner who is responsible for conducting the entire business operations. Unlike other business structures, the sole proprietorship business entity requires minimum paperwork. Quite interestingly, it is also subjected to minimum business restrictions and laws. So as you can see, this type of business structure is a popular model as it is simple and there is ease of setup. A sole proprietor needs to register his or her name and get local licenses.
Partnerships or Collaborations- Form 1065 and Pricing K-1
In usual terms, partnership refers to the relationship which is existent between any two individuals and who desire to setup a business. Note that a business modeled on partnership doesn’t have to pay taxes on the profits garnered. However, it declares its operational losses and profits to IRS via Form 1065. It is worth noting here that the partnership also sends the K-1 form to the owners which states profits and losses provided to each partner. Through these forms, the IRS would know how much money or taxes you owe to the IRS.
“C” Corporation- Form 1120
You should note that the “C” Corporation is a separate entity from its shareholders. Moreover, the “C” Corporation offers liability security in limited quantities to the shareholders and the directors. Note that the “C” Corporations are different payers of taxes. Further, a “C” Corporation files its own return and is liable to pay its own income. This is quite similar to an individual who pays his/her own taxes from his earnings.
“S” Corporations- Form 1120S and Pricing K-1
“S” Corporations are corporations which are elected to pass corporate income, credits and deductions. This is usually done for federal tax purposes. Also note that the shareholders of the “S” Corporations give a thorough insight on the flow of the income and losses on their personal tax returns. With the help of this mechanism, the “S” Corporations can avoid hefty deductions on grounds of taxes on corporate income.