They pay taxes first on the company's profits. Then, when shareholders receive their dividends, they pay taxes on those profits again at their individual tax rates.
"Pass-through" Entities
S corporations, partnerships, and sole proprietorships are considered "pass-through" entities. It means the business itself doesn't pay federal income tax. Instead, the profits or losses "pass through" to the owners' personal income tax returns.
"Pass-through" Entities - continue
S corporations file Form 1120-S to report income and losses. Each shareholder receives a Schedule K-1 showing their profit or loss, and report on their Form 1040.
Partnerships file Form 1065 to report income and losses. Each partner receives a Schedule K-1 showing their share of the profit or loss, and report on their Form 1040.
Sole proprietors report the business income and expenses on Schedule C on their Form 1040. The profits are taxed at their individual income tax rates.
Keep All Business Tax Documents and Records
For filing business tax return, you should have all records of business income and expenses in one computer spreadsheet. And keep original documents, like receipts, invoices, bank statements as supporting documents.
Business Tax Records for Tax Preparation
Business information (if you are initial filing business tax return)
All business owner's current, valid ID
Previous year's tax returns
The spreadsheet of business income and expenses
Ready to file your business tax return?
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Please upload your tax documents to WhatsApp: (678)995-4512 or Email: info@matatax.net
