Publication 583 |
2000 Tax Year |
Forms of Business
The most common forms of business are the sole proprietorship,
partnership, and corporation. When beginning a business, you must
decide which form of business to use. Legal and tax considerations
enter into this decision. Only tax considerations are discussed in
this publication.
Your form of business determines which income tax return form you
have to file. See Table 2 on page 6 to find out which form
you have to file.
Sole proprietorships.
A sole proprietorship is an unincorporated business that is owned
by one individual. It is the simplest form of business organization to
start and maintain. The business has no existence apart from you, the
owner. Its liabilities are your personal liabilities and you undertake
the risks of the business for all assets owned, whether or not used in
the business. You include the income and expenses of the business on
your own tax return.
More information.
For more information on sole proprietorships, see Publication 334,
Tax Guide for Small Business. But if you are a farmer, see
Publication 225,
Farmer's Tax Guide.
Partnerships.
A partnership is the relationship existing between two or more
persons who join to carry on a trade or business. Each person
contributes money, property, labor, or skill, and expects to share in
the profits and losses of the business.
A partnership must file an annual information return to report the
income, deductions, gains, losses, etc., from its operations, but it
usually does not pay income tax. Instead, it "passes through" any
profits or losses to its partners. Each partner includes his or her
share of the partnership's items on his or her tax return.
More information.
For more information on partnerships, see Publication 541,
Partnerships.
Corporations.
In forming a corporation, prospective shareholders transfer money,
property, or both, for the corporation's capital stock. A corporation
generally takes the same deductions as a sole proprietorship to figure
its taxable income. A corporation can also take special deductions.
The profit of a corporation is taxed to the corporation when
earned, and then is taxed to the shareholders when distributed as
dividends. However, shareholders cannot deduct any loss of the
corporation.
More information.
For more information on corporations, see Publication 542,
Corporations.
S corporations.
An eligible domestic corporation can avoid double taxation (once to
the corporation and again to the shareholders) by electing to be
treated as an S corporation. An S corporation generally is exempt from
federal income tax other than tax on certain capital gains and passive
income. Its shareholders include on their tax returns their share of
the corporation's separately stated items of income, deduction, loss,
and credit, and their share of nonseparately stated income or loss.
More information.
For more information on S corporations, see the instructions for
Form 2553, Election by a Small Business Corporation, and
for Form 1120S, U.S. Income Tax Return for an S Corporation.
Limited liability company.
A limited liability company (LLC) is an entity formed under state
law by filing articles of organization as an LLC. None of the members
of an LLC are personally liable for its debts. An LLC may be
classified for federal income tax purposes as either a partnership, a
corporation, or an entity disregarded as an entity separate from its
owner by applying the rules in regulations section 301.7701-3.
See the instructions for Form 8832, Entity Classification
Election, for more details.
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