Sole Proprietorship: (File Form 1040 along with Pricing C)
A sole proprietorship is a business owned by a single individual. This sole owner is responsible for the entire business and is the sole recipient of the business's earnings. Unlike other legal structures, the sole proprietorship requires less paperwork and is subject to few business restrictions and regulations. The sole proprietorship is a popular business form due to its simplicity, ease of setup, and nominal cost. A sole proprietor need only register his or her name and secure local licenses, and the sole proprietor is ready for business.
Partnerships: (File Form 1065 and issue Pricing K-1 to partners)
A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Though a partnership doesn't pay taxes on its profits, it does declare its operating losses and profits to the IRS in Form 1065. The partnership must also send Form K-1 to owners that states profits/losses allocated to each partner (the K-1 is reported on line 17 of your personal tax return 1040). Through these forms, both the IRS and every partner is made aware of how much is owed to the IRS by each partner.
Even before you receive your Form K-1, you'll need to estimate the tax amount you owe. This is to be sure that you set aside a sufficient amount of money to pay your taxes.
“C” corporation: (File Form 1120)
A “C” corporation is a separate entity from its shareholders, and “C” corporations offer limited liability protection to Directors and shareholders. “C” Corporations are separate taxpayers for federal income tax purposes. A “C” Corp files its own federal income tax return and pays its own income taxes (similar to an individual).
“S” corporations: (File Form 1120S and issue Pricing K-1 for each shareholder)
S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income.