As a sole proprietor, you must report all business income or losses on your personal income tax return; the business itself is not taxed separately. Sole proprietors pay taxes on business income on their personal tax returns.
Filing Taxes for Different Business Entities
- Sole proprietors file need to file two forms to pay federal income tax for the year: Form 1040, the individual tax return, and Schedule C, which reports business profit and loss.
- An LLC with no business activity that is taxed as a partnership is not required to file a partnership tax return unless there are expenses or credits that the LLC wants to claim.
Tax Obligations for Corporations and LLCs
- All corporations must file a corporate tax return, even if they have no income. An LLC taxed as a corporation must also file a federal income tax return even if it was inactive during the year.
Tax Efficiency Tips for Business Owners
- You can either deduct or amortize start-up expenses once your business begins rather than filing business taxes with no income. If you were actively engaged in your trade or business but didn’t receive income, then you should file and claim your expenses.
Tax Obligations and Procedures
- If your sole proprietorship business has no profit or loss for the full year, you don’t need to file a tax return. However, an LLC with no business activity taxed as a partnership must file a partnership tax return to claim expenses or credits.
- How much does a sole proprietor have to make to file taxes?
Tax Reporting Specifics
- A sole proprietorship does not need to file any special tax forms with the state or federal government. Generally, the only tax form a sole proprietor will file with the IRS is Schedule C as part of Form 1040.
- Single-member LLCs are pass-through entities that report business activity on the owner’s personal return. Consequently, LLCs taxed as sole proprietorships don’t have to file an annual federal business tax return in years of no business activity.