are not immediately taxed at the shareholder level, allowing businesses to reinvest profits without incurring additional tax burdens. (ii) Pass-Through Taxation (S Corporations, LLCs, and Partnerships). S Corporations, LLCs, and Partnerships benefit from pass-through taxation, meaning business profits and losses are reported on the owners’ personal tax returns rather than being taxed at the entity level. This avoids double taxation and can lead to tax savings for small to mid-sized businesses. a) S Corporations must meet specific IRS eligibility requirements, including a cap of 100 shareholders, all of whom must be U.S. citizens or residents. They file Form 1120-S, and shareholders report their portion of profits or losses on Schedule K-1. b) LLCs are taxed as sole proprietorships (if single-member) or partnerships (if multi-member) by default but may elect to be taxed as an S Corp or C Corp for strategic tax planning. Multi-member LLCs file Form 1065, and members report their earnings on Schedule K-1. c) Partnerships (General, Limited, LLPs, and LLLPs) do not pay corporate taxes. Instead, income is passed through to partners, who report it on their personal tax returns. Partnerships must file Form 1065 and issue Schedule K-1 to each partner, detailing their share of profits and losses. Certain partnership types, such as LLPs and LLLPs, may have additional state tax filing requirements. (iii) Annual Tax Filings and Payroll Obligations. All business entities must file annual tax returns with the IRS and applicable state agencies. Corporations submit Form 1120 (C Corps) or Form 1120-S (S Corps), while LLCs and partnerships typically file Form 1065 unless they elect corporate taxation. Additionally, businesses with employees must withhold and remit payroll taxes, including Social Security, Medicare, and unemployment taxes, filing quarterly payroll reports (Form 941) and annual wage statements (Form W-2 and Form 1099 for contractors). (iv) Foreign Shareholder Tax Considerations. Foreign shareholders receiving dividends from a U.S. corporation may be subject to a 30% withholding tax unless reduced or eliminated under a tax treaty between the U.S. and the shareholder’s country of residence. The specific treaty terms dictate the final withholding rate, and foreign owners must file IRS Form W-8BEN to claim treaty benefits. Foreign partners in a U.S. partnership are subject to effectively connected income (ECI) taxation, meaning they must file U.S. tax returns and may have federal withholding obligations under Section 1446 of the Internal Revenue Code. Partnerships with foreign partners are required to withhold and remit estimated tax payments on behalf of non-U.S. partners.
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