Sub-Chapter S (Form 1120S, K1) Business Tax Preparation
Next, the very popular Sub-Chapter S Corporation offers many advantages and flexibility. This type of entity files an 1120S return, also with a K-1 which passes-through the income to its respective shareholders. Again, no Federal income tax is paid when filing an 1120S. The tax is paid in the shareholders individual income tax returns. On word of caution, be aware of the Reasonable Compensation rules that are consistently challenged by the IRS.
C Corporation (Form 1120) Business Tax Preparation
Third, a not-so-popular C Corporation is also an option. Due to the double taxation issues of this type of entity, these are selected less and less. Filing an 1120 return and paying 15% tax on the first $50,000 earnings and 25% on the next $25,000 of net income also adds to its unpopularity.
LLC (Limited Liability Corporation) Business Tax Preparation
Last, an LLC has grown to be a very viable option for many small and medium sized businesses. Many don’t know, however, that an LLC by itself is a disregarded entity in the eyes of the IRS, so a special election must be made to choose how you want to be taxed – a Partnership, a Sub-Chapter S Corp, A Ce Corp or even in the situation of a sole member, it can default to an individual’s 1040.
I hope this summary helps you navigate the tax preparation and entity selection. Thanks for visiting.