Sole proprietorships, partnerships, and corporations are taxed differently. Sole proprietors report business income on their individual tax returns, partnerships report income on individual tax returns, and corporations are subject to corporate income tax.
Sole proprietorships, partnerships, and corporations are taxed differently.
- Sole proprietorships: The business owner is personally responsible for reporting business income and expenses on their individual tax return. The business itself does not pay separate taxes.
- Partnerships: Each partner reports their share of the partnership's income on their individual tax return. The partnership itself does not pay income taxes, but it files an information return to report its income, deductions, and credits.
- Corporations: Corporations are separate legal entities and are subject to corporate income tax. Shareholders may also be taxed on dividends received from the corporation.