Understanding Business Income and Taxation

Owned by a single individual and not legally separate from the owner.

Income and expenses are reported on Schedule C (Form 1040).

If net earnings exceed $400, self-employment tax must be calculated using Schedule SE (Form 1040).

An LLC with one owner is generally taxed as a sole proprietorship unless it elects corporate taxation.
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Formed by two or more individuals who share profits and losses.

Files Form 1065 to report business income and expenses.

Each partner receives a Schedule K-1 outlining their share of income and expenses, which is reported on their individual tax returns.

LLCs with multiple owners are typically taxed as partnerships unless they elect to be taxed as corporations.
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A separate legal entity from its owners.

Files Form 1120 to report income and expenses.

Certain businesses can choose to be taxed as an S Corporation by filing Form 2553, which allows income and expenses to pass through to shareholders via Schedule K-1.
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Created under state law and can be taxed as a sole proprietorship, partnership, or corporation, depending on elections made.

Default tax treatment depends on the number of owners: single-member LLCs are taxed like sole proprietorships, while multi-member LLCs are taxed like partnerships unless an election is made to be taxed as a corporation.