Business income is income that you receive when you sell products or services. For example, fees are business income to a professional person. Rents are business income to a person in the real estate business. Income received in the form of property or services must be included in income at its fair market value on the date received.

Normally a business is conducted in the form of either a sole proprietorship, a partnership, or a corporation. A sole proprietorship is the simplest form of business organization. It has no existence apart from its owner. Business debts become personal debts of the owner. A sole proprietor files Schedule C, or in some cases Schedule C-EZ, Form 1040, to figure the profit or loss from the business and Schedule SE, Form 1040, to figure self- employment tax. Self-employment tax is the combined social security and Medicare tax on income from self-employment. Refer to Topic 408, for additional information. For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business.

A partnership is the relationship between two or more entities who join to carry on a trade or business. Each entity contributes any combination of money, property, labor, or skills, and each expects to share in the profits and losses of the business.

A partnership's income and expenses are generally reported on Form 1065, an annual information return. No income tax is paid by the partnership itself. Each partner receives a Schedule K-1, Form 1065, which generally allocates the income and expenses among the partners according to the terms of the partnership agreement. For more information, see Publication 541, Partnerships.

A corporation, for federal income tax purposes, generally includes associations, joint stock companies, insurance companies, and trusts and partnerships that actually operate as associations or corporations. The owners of a corporation are the shareholders. A corporation determines its tax on Form 1120, or the shorter Form 1120A if it meets certain requirements. For more information on corporations in general, see Publication 542, Corporations.

Corporations that meet certain requirements may elect to become S corporations which are treated in a manner similar to partnerships. While an S corporation files Form 1120S, most income and expenses are passed through to the shareholders on Schedule K-1, Form 1120S to be included on their separate returns. For more information, see the instructions for Form 1120S.

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