When someone starts a business in the United States, taxes do not work the same way for everyone. The way a business files its tax return depends on its legal structure. This is the most important thing to understand.
In simple words, the US government does not tax “business” as one single category. Instead, it taxes businesses based on their legal type. Some businesses are taxed through the owner’s personal tax return. Others file a completely separate return. Once you understand the structure, the rest becomes much easier. So here you will learn how to file a US Business Tax Return, and I will also explain the Forms 1065, 1120, and 1120-S.
The Different Types of Business Structures
There are five common business structures in the United States. Each one has its own tax form and rules.
| Business Type | Tax Form Used | Separate Tax Return? |
|---|---|---|
| Sole Proprietorship | Schedule C (with Form 1040) | No |
| Partnership | Form 1065 | Yes |
| Limited Liability Company (LLC) | Depends on tax election | Depends |
| S Corporation | Form 1120-S | Yes |
| C Corporation | Form 1120 | Yes |
Now, let us understand each one from the starting point to the end.
Sole Proprietorship
This is the simplest type of business. One person owns the business. There is no legal separation between the owner and the business.
For tax purposes, the business does not file a separate tax return. Instead, the owner reports business income and expenses on something called Schedule C, which is attached to the personal Form 1040.
The process works like this. The owner calculates the total business income. Then they subtract business expenses such as rent, supplies, internet bills, equipment, and marketing costs. The remaining amount is called net profit.
That net profit becomes part of the owner’s personal income. The owner pays income tax on it and also pays something called self-employment tax, which covers Social Security and Medicare.
There is no separate corporate tax in this case.
Partnership
A partnership exists when two or more people run a business together.
Unlike a sole proprietorship, a partnership must file its own tax return using Form 1065. However, the partnership itself does not pay income tax.
Instead, the business calculates total profit and then divides that profit among partners according to their ownership agreement. Each partner receives a document called Schedule K-1. This shows their share of the profit.
Each partner then reports that income on their personal tax return and pays tax individually.
So the partnership files a return, but the partners pay the tax.
Limited Liability Company (LLC)
An LLC is a flexible business structure. The important thing to understand is that an LLC is a legal structure, not a tax structure.
For tax purposes, the IRS allows an LLC to choose how it wants to be taxed.
If the LLC has only one owner, it is usually treated like a sole proprietorship. Income goes on Schedule C with Form 1040.
If the LLC has multiple owners, it is usually treated like a partnership and files Form 1065.
However, an LLC can also choose to be taxed as an S corporation or a C corporation. In that case, it files Form 1120-S or Form 1120.
This flexibility is why LLCs are very popular in the United States.
S Corporation
An S corporation is a special type of corporation that chooses pass-through taxation.
It files its own tax return using Form 1120-S. However, like a partnership, it does not pay federal income tax at the corporate level.
Instead, profits pass through to shareholders. Each shareholder receives a Schedule K-1 showing their share of the income. They report it on their personal return and pay tax individually.
One key difference is that S corporation owners can pay themselves a salary. That salary is subject to payroll taxes, while the remaining profit may not be subject to self-employment tax. This is why many small business owners choose S corporation status.
Read more: USA National ID: Understanding Driver’s Licenses, State IDs, REAL ID, and Passport Cards
C Corporation
A C corporation is completely separate from its owners. It files Form 1120 and pays corporate income tax on its profits.
After the corporation pays tax, if it distributes profit to shareholders as dividends, those shareholders also pay tax on those dividends.
This situation is commonly called double taxation because the profit is taxed at the corporate level and again at the individual level.
Large companies in the United States usually operate as C corporations.
How Business Income Is Calculated
Regardless of structure, the basic calculation is similar.
First, the business adds all revenue earned during the year. Then it subtracts allowable expenses. These expenses must be ordinary and necessary for running the business.
After expenses are deducted, the remaining amount is the net profit. That profit is either taxed at the business level or passed to the owners, depending on the structure.
Filing Deadlines
Business tax return deadlines are different from individual deadlines.
Partnerships and S corporations usually file by March 15. C corporations typically file by April 15. Sole proprietors follow the individual deadline because their business income is included in their personal return.
If needed, businesses can request extensions. However, similar to individual taxes, extensions give more time to file but not more time to pay.
Learn more: How to File a US Individual Tax Return (Form 1040)
Payroll and Other Taxes
Many businesses also have additional tax responsibilities. If they have employees, they must withhold payroll taxes and file quarterly employment tax returns. They may also need to pay state taxes, sales tax, and local business taxes.
Business taxation is not just one form per year. It often involves ongoing reporting throughout the year.
Conclusion
US business tax returns depend entirely on business structure.
A sole proprietor reports business income on their personal return. A partnership files Form 1065 but passes profit to partners. An S corporation files Form 1120-S and passes income to shareholders. A C corporation files Form 1120 and pays corporate tax itself. An LLC chooses how it wants to be taxed.
Once you understand this structure-based system, the confusion disappears. The tax form is simply a reflection of how the business is legally organized.
If you want, next we can write about Nonprofit Tax Returns or explain US taxes in comparison with Pakistan’s system, so your readers can relate more easily.
