How Business Taxes

In: Business and Management

Submitted By marymcc
Words 815
Pages 4
| How Businesses Are Taxed | Businesses have to pay federal income tax just like individuals. However, different business entities are taxed differently. Understanding these basic differences will help you to identify federal income tax obligations as you conduct business with different business formations. Income taxation can impact commercial transactions between different kinds of businesses, such as sole proprietorships, partnerships, franchised, and corporations. Sole proprietorships
A sole proprietorship is a small business owned by a single individual. The owner is the business; the business is not a separate legal entity. The federal income tax obligation to be aware of when conducting business with sole proprietorships is that the sole proprietorship pays income tax only once on the income of the business, which the owner reports on his personal income tax form. There is no separate tax-filing requirement for the business itself. Since the sole proprietor is the business, he is responsible for the same income tax obligations as are most individuals. He does get the benefit of all business deductions, which he can write off against his personal income. In a good year, the owner of a sole proprietorship may want to make capital purchases, and defer payments from creditors until after the end of the tax year, so that he can offset assets and liabilities against his tax burden. Partnerships
In a partnership, two or more people agree to combine their money, ideas, skills, and efforts and then share the resulting successes or failures. A partnership itself doesn't pay taxes, but it does file an informational tax return with the Internal Revenue Service. The partners show their parts of the income or losses and business deductions of the partnership on their respective personal income tax returns, and each pays taxes on that portion. The income tax…...

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