Business income is income received for products or services sold. For example, fees paid to a professional person are considered business income. Rents paid to a person in the real estate business are business income. Payments received in the form of property or services must be included in income at their fair market value.

Normally a business is organized as either a sole proprietorship, partnership, or corporation. A sole proprietorship is the simplest form of business organization. It has no existence apart from its owner. Business debts are personal debts of the owner. As a sole proprietor, you file Form 1040 Schedule C (PDF), or Form 1040 Schedule C-EZ (PDF), with Form 1040, to report the profit or loss from your business. Also, you must file Form 1040 Schedule SE (PDF) if you had net earnings (from Schedule C or C–EZ) of $400 or more or had church employee income of $108.28 or more. Schedule SE is used to figure self–employment tax, which is the combined social security and Medicare tax on self–employment income. For more information on Sole Proprietorships refer to Topic 408 or order Publication 334, Tax Guide for Small Business.

A partnership is an unincorporated business organization that is the result of two or more persons joining together to carry on a trade or business. Each person contributes a combination of money, property, labor, or skills, and each expects to share in the profits and losses. A limited liability company with more than one owner is generally treated as a partnership for tax purposes. A partnership's income and expenses are generally reported on Form 1065 (PDF), an annual information return. No income tax is paid by the partnership itself. Each partner receives a Form 1065 Schedule K-1 (PDF), which generally allocates the income and expenses among the partners according to the terms of the partnership agreement. For more information, refer to Publication 541, Partnerships.

A corporation, for Federal income tax purposes, generally includes a business formed under Federal or state laws that refer to it as a corporation, body corporate, or body politic. It also includes certain businesses that elect to be taxed as a corporation by filing Form 8832 (PDF). The owners of a corporation are the shareholders. The tax on a corporation's income is figured on Form 1120 (PDF) or Form 1120A (PDF). For more information on corporations in general, refer to Publication 542, Corporations. Corporations that meet certain requirements may elect to become S corporations, which are treated in a manner similar to partnerships. An S corporation files Form 1120S (PDF), and generally does not pay tax on its income. Most income and expenses are "passed through" to the shareholders on Form 1120S Schedule K-1 (PDF). These amounts are to be included on the shareholders' individual returns.