Business Entity Definitions
Your business type, or business entity, determines what kind of federal tax return you'll prepare.
C Corporation (Form 1120)
A C Corporation (usually simply called a "corporation") is a separate and legal entity that offers the greatest flexibility with respect to ownership and the free transferability of ownership interest.
Corporations file their own tax returns using Form 1120 to report income and losses.
Income is first taxed at the corporate level and, when distributed as dividends, the same money is taxed again at the shareholder level. As a result, income generated by a corporation can be taxed twice.
S Corporation (Form 1120-S)
An S Corporation is a small business corporation, usually with less than 100 shareholders, which has elected to have its profits pass through to its shareholders, in the same manner as a partnership or sole proprietorship.
The owners (shareholders) of an S Corporation receive the benefit of limited liability, and are treated in the manner of partners for purposes of taxation. Income and losses from the business are
S Corporations will file a Form 1120-S tax return.
Partnerships and Limited Liability Companies/LLCs (Form 1065)
A Partnership is a type of unincorporated business organization in which multiple owners, called partners, manage the business and are equally liable for its debts.
Unlike an LLC or Corporation, each partner shares equal responsibility for the company's profits, losses, debts, and liabilities.
The partnership itself does not pay income taxes, but each partner has to report their share of business profits or losses on their individual tax return. The partnership will also file a Form 1065 tax return.
Limited Liability Companies or LLCs
LLCs are a relatively new type of business structure that combine the advantages of corporations with those of sole proprietorships or partnerships.
LLC profits and tax benefits are split by its owners, called members. LLC returns are filed only for reporting purposes; the members report their business profits or losses on their individual (Form 1040) tax returns.
Before filing your LLC return, make sure you choose the correct federal tax form:
- If you and other members set up an LLC to protect each member's personal assets from business creditors, file a Form 1065 tax return.
- If you are the only owner of this LLC and you filled out paperwork (Form 8832) to file as a corporation, file as a C Corporation (Form 1120) or S Corporation (Form 1120-S).
- If you are the only owner of this LLC and you did not fill out paperwork (Form 8832) to file as a corporation, file an individual (Form 1040) return with a Schedule C. You'll need to use TurboTax Home & Business or TurboTax Premier; the TurboTax Business product does not contain these forms. More info
Estates and Trusts (Form 1041)
An estate consists of personal property (automobiles, furniture, etc.), real property (homes, land), and intangible property (stock certificates, bank accounts, etc.) that was owned by someone at the time of their death.
A trust is a business arrangement in which property is given by one person (the settler) to be held by another (the trustee) for the purposes of benefiting a specific class of persons or the general public (the charitable purpose).
Tax returns filed on the behalf of estates and trusts are also called fiduciary returns. A fiduciary is an individual (such as a trustee, administrator or executor) or organization legally responsible for managing assets on behalf of another party, usually called the beneficiary. The fiduciary is obligated to manage the beneficiary's assets in the best interests of the beneficiary.
Form 1041 is used to file fiduciary tax returns.
Sole Proprietor (Schedule C)
A sole proprietor is the one and only owner of a business. S/he alone directs the business' affairs, bears its risks and losses, and takes the profits and benefits.
Self-employed people such as consultants, contractors, performing artists, etc. fall into this category.
In most cases, sole proprietors file a Schedule C along with their individual (Form 1040) tax return to report income and expenses. TurboTax Business does not include Schedule C. More info
However, if you are the sole owner of a Limited Liability Corporation (LLC) and filled out paperwork (Form 8832) to file as a corporation, you will file as an S Corporation (Form 1120-S) or a C Corporation (Form 1120), not a Schedule C. (This is not common.)
Non-Profit (Form 990)
Although nonprofits are generally exempt from federal and state taxes, they are required to report their activities, income, and assets.
Also, nonprofit organizations must file Form 990 with the IRS to maintain tax-exempt status.
TurboTax does not support Form 990, but you can click here to find out how to obtain this form.