• Single-member LLC: Taxed as a sole proprietorship (called a "disregarded entity"). You report income and expenses on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship) of your personal tax return. • Multi-member LLC: Taxed as a partnership . The LLC files Form 1065 , and each member receives a Schedule K-1 (Form 1065) showing their share of income, deductions, and credits to report on their personal returns. Taxed as a C corporation : File Form 8832, Entity Classification Election and check the "corporation" box. Taxed as an S corporation: First file Form 8832, Entity Classification Election (if needed), then file Form 2553,Election by a Small Business Corporation. Selecting or Changing the Tax Year When you start your business, you decide your business’s tax year—the 12-month period you use to track income and file tax returns. Most businesses use a calendar year : January 1 through December 31. • Some use a fiscal year : any 12 consecutive months ending on the last day of a month other than December (for example, July 1 through June 30), or a special 52‑53 week year. • You pick your tax year when you file your first tax return. • Once chosen, you usually must keep the same tax year unless you get approval from the IRS to change it. • To change your tax year, you must show a valid business reason (like matching your accounting system or business cycle) and prove changing won’t create an unfair tax advantage. • To request a change, file IRS Form 1128, Application to Adopt, Change, or Retain a Tax Year.
Tax Year Rules by Business Type Sole Proprietorship
Most sole proprietors use the calendar year , matching their personal tax filing. They report all income, including business income, on their personal tax return ( Form 1040, U.S. Individual Income Tax Return ) each year. Partnership A partnership usually uses the tax year of partners holding more than 50 percent of the profits or capital. • If majority partners have different tax years, the partnership generally uses the calendar year unless it shows a valid business reason for a different fiscal year. • Partnerships may make a Section 444 election (file Form 8716, Election To Have a Tax Year Other Than a Required Tax Year ) to adopt a fiscal year and delay some tax payments, but this comes with special rules and sometimes deferral payments.
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