Income Taxes for Your Business Type
Below, we’ve provided brief definitions for different kinds of business. Each definition has a link that discusses filing requirements, business tips and publications to help you with income tax preparation.
- Sole Proprietorship
- General Partnerships and Limited Partnerships
- S Corporation
- Limited Liability Company and Limited Liability Partnership
A sole proprietorship is an unincorporated business that is owned by one person. It is the simplest form of business organization to start and maintain. The business has no existence apart from you, the owner. Its liabilities are your personal liabilities, and you undertake the risks of the business for all assets owned, whether used in the business or personally owned. You include the income expenses of the business on your own tax return.
Get more information and filing requirements for sole proprietorships.
General Partnerships and Limited Partnerships
A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill and expects to share in the profits and losses of the business.
A partnership is not taxable on the income of the entity. Each partner includes his or her share of the partnership's income or loss on his or her tax return.
In forming a corporation, prospective shareholders transfer money, property, or both for the corporation's capital stock. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. A corporation can also take special deductions.
The profit of a corporation is taxed to both the corporation and to the shareholders when the profit is distributed as dividends. However, shareholders cannot deduct any loss of the corporation.
Get more information about filing requirements for C Corporations.
An S corporation is a hybrid business entity. It has a separate legal existence and generally offers liability protection to its owners (shareholders). It pays California tax on its net income and also is a conduit where the profit or loss flows through to the shareholders. The corporation must elect to be treated as an S corporation. There can be no more than 75 shareholders and only one class of stock. Shareholders can only be individuals, estates or certain trusts. S corporations can own subsidiaries.
The income of an S corporation is generally not subject to federal income tax. Its shareholders include on their tax returns their share of the corporation's separately stated items of income, deduction, loss, credit, and their share of non-separately stated income or loss.
Get more information about filing requirements for S Corporations.
Limited Liability Company and Limited Liability Partnership
An LLC may be a sole proprietorship, corporation, or a partnership. (A minimum of 2 members is required for federal purposes to operate an LLC as a partnership.) Consequently, the applicable tax forms, estimated tax payment requirements and related tax publications are dependent upon whether the LLC operates as a sole proprietorship, corporation, or a partnership.