What Is a Business Tax Return?

A business tax return is a set of forms filed with the IRS (and often state agencies) to report a business's income, expenses, and other tax-related information for a specific tax year. The purpose is to determine the business’s tax liability or to report income and losses that flow through to the owners' personal tax returns. The type of return and forms required depend on the business structure:

  • Sole Proprietorships: Report business income and expenses on Schedule C, attached to the owner’s individual Form 1040.
  • Partnerships: File Form 1065 (informational return). Income and losses are passed through to partners, who report them on their personal returns using Schedule K-1.
  • C Corporations: File Form 1120 as a separate entity. The corporation pays tax on its income.
  • S Corporations: File Form 1120-S. Income and losses are passed through to shareholders, who report them on their personal returns using Schedule K-1.
  • LLCs: Taxed based on their chosen classification (sole proprietorship, partnership, or corporation).

How to File a Business Tax Return

  1. Identify Your Business Structure
  • Determine if you are a sole proprietor, partnership, corporation, S corporation, or LLC. This dictates which forms you must file.
  1. Gather Financial Records
  • Collect all relevant documents, including income statements, expense receipts, payroll records, and previous tax returns.
  1. Complete the Correct Tax Forms
  • Sole proprietors: Schedule C with Form 1040.
  • Partnerships: Form 1065 and Schedule K-1 for each partner.
  • C Corporations: Form 1120.
  • S Corporations: Form 1120-S and Schedule K-1 for each shareholder.
  1. Include Additional Forms If Needed
  • Employment tax forms (e.g., Form 940 for unemployment tax, Form 941 for payroll taxes) if you have employees.
  • Schedule SE for self-employment tax (sole proprietors).
  1. File Electronically or by Mail
  • Submit your completed forms to the IRS by the deadline (generally March 15 for partnerships and S corps, April 15 for sole proprietors and C corps, unless extended).
  • Many businesses use tax software or hire a tax professional for accuracy and compliance.
  1. Pay Any Taxes Owed
  • Pay any tax due by the filing deadline to avoid penalties and interest. Some businesses must also make quarterly estimated tax payments.
  1. Keep Records
  • Retain copies of all filed returns and supporting documentation for at least three years for IRS compliance.

Filing the correct business tax return based on your entity type is crucial for legal compliance and to minimize tax liability.