is taxed to the partners, whether or not it is actually distributed. The partnership files an information return; income, deductions, and credits pass through to partners. This is the case for both federal and Minnesota tax purposes. Corporation A corporation is a separate legal and taxable entity. For tax purposes, a C corporation is the taxpayer and pays its own income/franchise tax; dividends to shareholders are taxed again to the shareholders. For an S corporation it is generally treated as a pass-through; items flow to shareholders, who report them on their individual returns. Both C corporations and S corporations file federal and Minnesota tax returns. These rules become more complicated in the case of an S corporation that was taxed as a C corporation at some time prior to electing to be taxed as an S corporation. Note that because a corporation is an entity separate from its owners, if the owner (and/or members of the owner’s family) performs services for the corporation, these persons are considered to be employees of the corporation. Thus, the corporation will be required to comply with most of the laws and regulations and reporting requirements that apply to employers, including filing employment tax forms. Limited Liability Company (LLC) By default, a single‑member LLC is disregarded (taxed like a sole proprietorship) and a multi‑member LLC is taxed like a partnership, unless an election is made to be taxed as a C or S corporation under federal “check‑the‑box” rules. A multi-member LLC files an election to be taxed as a corporation or pass-through by checking the appropriate box on IRS Form 8832, Entity Classification Election. A single member LLC desiring to be taxed as a “disregarded entity” (like a sole proprietorship) does not need to file Form 8832 but does need to file Form 8832 if it wishes to be taxed as a corporation. Minnesota follows that election. What Tax Forms Are Used? Sole Proprietorship Federal forms: • Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship) and any related forms and schedules. • Form 1040, U.S. Individual Income Tax Return: - Transfer net income/loss from Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship) to your individual return. • Schedule SE (Form 1040), Self-Employment Tax: Report net self-employment income for Social Security, Medicare and self-employment tax. Minnesota forms: • Form M1, Individual Income Tax: Compute Minnesota income tax • Attachments: Must include copies of federal Form 1040, U.S. Individual Income Tax Return, Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship), and Schedule SE (1040) , Self Employment Tax (if applicable) • Note: Minnesota does not impose a self-employment tax
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