Individuals & Self Employed

Individuals who use standard Internal Revenue Service (IRS) form 1040 that single & married taxpayers use to file their annual income tax returns.

• Short form is a basic form used to report gross earnings by employees that receive form W-2 and are not home owners.

• Long form is used to report gross earnings (e.g., income, products, real estate, and services).

• Self employed use various schedules to report self employment income

  • To calculate self-employment taxes, multiply your net self-employment income by 0.9235. Then, if the result is less than the contribution and benefit base for the year, multiply the result by the total self-employment tax rate, currently 15.3 percent.

LLC

Income earned by a single member LLC is treated as earned income of the individual owner. The income becomes part of the total income earnings of the owner for the year and is taxed at the maximum individual tax rate of 35 percent.

• Usually, an LLC is taxed as a partnership or a sole proprietorship, which means that the LLC pays no federal income taxes. The profits and losses are passed through to the members, Like one-member LLCs, co-owned LLCs do not pay taxes on business income; instead, the LLC owners each pay taxes on their share of the profits on their personal income tax returns (with Schedule E attached).

Corporations

A traditional C Corporation is treated as a separate legal entity by the U.S. Internal Revenue Services (IRS). The business is charged corporate income tax for profits earned. The shareholders are liable to pay personal income tax on income earned from the company, i.e. profits earned in the form of dividends. This practice is often termed as “double taxation.” Certain fringe benefits provided for employee welfare such as healthcare and life insurance are deductible from corporate profits, which helps reduce the corporation’s tax burden.

Conversely, an S corporation does not get charged at the corporate level. All gains accrued by the business are attributed to the owners, who are then charged personal income tax. It resembles the model of a sole proprietorship or a partnership. An S corporation is not permitted to deduct the cost of fringe benefits offered, which means that they add to the taxable income of all shareholders holding more than 2% of stock.