Small Business Tax

There are several important tax issues that arise for owners and managers of small businesses. These issues occur at the federal, state, and local levels. Because the state and local issues vary so widely, this entry focuses primarily on federal tax issues.

To understand the many tax issues that arise for small businesses, one must first know the different types of business entities one may create. The Internal Revenue Service (IRS) and the U. S. tax laws—codified in the Internal Revenue Code (IRC)—treats each of these entities in significantly different ways. The four basic forms of businesses are:

1. Sole proprietorships
2. Partnerships (general and limited)
3. Corporations and S)
4. Limited liability companies

Generally, taxpayers who own their businesses alone can form any one of these types of businesses except partnerships. Multiple owners of a business may form any type of business except a sole proprietorship.

Most of the many kinds of business income are taxable. The Internal Revenue Service (IRS) taxes the income generated by a business the same as it does an individual’s income. Similarly, businesses can minimize their tax liabilities through deductions and credits the same way individuals can.


Inside Small Business Tax