Partnerships file Form 1065 (PDF), U.S. Partnership Return of Income, to report income and expenses. The partnership passes the information to the individual partners on Schedule K-1, Form 1065. The partners report the information and pay any taxes due on Form 1040. Because partners are not employees of the partnership, no withholding is taken out of their distributions to pay the income and self-employment taxes on their Forms 1040. The partners may need to pay Estimated Tax Payments using Form 1040-ES.

Refer to Form 1065 Instructions, U.S. Partnership Return of Income and Chapter 2 of Publication 505, Tax Withholding and Estimated Tax, for additional information.

It is possible for either the husband or the wife to be the owner of the sole proprietor business. When only one spouse is the owner, the other spouse can work in the business as an employee. If a married couple who file a joint tax return elect to conduct their business activities as a qualified joint venture, (a trade or business in which the husband and wife materially participate in such venture), the spouses must divide the items of income, gain, loss, deduction, credit and expenses in accordance with their respective interests in such venture. For more information see Election for Husband and Wife Unicorporated Businesses This is effective for taxable years beginning after December 31, 2006. Also, see Rev. Proc. 2002-69 for Special Rules for Spouses in Community States.

References:

• Publication 334, Tax Guide for Small Business
• Publication 541, Partnerships
• Taxpayer Protection Act of 2007

Partners of a partnership are considered to be self-employed. The partnership must furnish copies of Schedule K-1 to the partners by the partnership information return due date or extended due date. If you are a member of a partnership that carries on a trade or business, your distributive share of the income or loss from that trade or business is net earnings from self-employment. Limited partners are subject to self-employment tax only on guaranteed payments, such as salary and professional fees for services rendered.

References:

• Form 1065 Instructions, U.S. Partnership Return of Income
• Publication 334, Tax Guide for Small Business
• Revenue Ruling 69-184
• Publication 541, Partnerships

A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Unlike a partnership, none of the members of an LLC are personally liable for its debts. An LLC may be classified for Federal income tax purposes as if it were a sole proprietorship (referred to as an entity disregarded as separate from its owner), a partnership, or a corporation. If the LLC has only one owner, (see Publication 555, on community property states), it will automatically be treated as if it were a sole proprietorship (a disregarded entity), unless an election is made for it to be treated as a corporation. If the LLC has two or more owners, it will automatically be treated as a partnership unless an election is made for it to be treated as a corporation. If the LLC does not make a classification election, a default classification of partnership (multi-member LLC) or disregarded entity (single-member LLC) will apply. The election referred to is made using the Form 8832 (PDF), Entity Classification Election. If a taxpayer does not file Form 8832 (PDF), a default classification will apply.

References:

• Publication 3402 (PDF) Tax Issues For Limited Liability Companies
• Publication 334, Tax Guide for Small Business
• Tax Topic 103, Small Business Tax Education Program
• Publication 542, Corporations
• Publication 541, Partnerships

A domestic partnership must file an income tax form unless it neither receives gross income nor pays or incurs any amount treated as a deduction or credit for federal tax purposes.

A domestic corporation must file an income tax form whether it has taxable income or not.

References:

• Publication 541, Partnerships
• Form 1065 Instructions, U.S. Partnership Return of Income
• Publication 542, Corporations

Some forms and entities have due dates other than the well-known April 15th due date. The instructions for the each type of form used will have the appropriate due date(s) noted. In general, sole proprietor's schedule of income and expenses is attached to the Form 1040 (PDF). Therefore, the due date is the same as the Form 1040 (PDF).

A Corporation may use either the calendar year, or a different tax year. An S corporation generally must use the calendar year, unless the entity can establish a business purpose for having a different tax year. The due date is March 15th for corporations on a calendar year and the 15th day of the third month following the end of the tax year for other corporations.

A partnership generally must conform its tax year of the partners unless the partnership can establish a business purpose for having a different tax year.

References:

• Publication 541, Partnerships
• Publication 542, Corporation
• Publication 334, Tax Guide for Small Business
• Entities: Sole Proprietor, Partnership, Limited Liability Company/Partnership (LLC/LLP), Corporation, Subchapter S Corporation