What is a C Corporation?A C Corp is a tax classification for companies with an unlimited number of owners and potentially international shareholders. For tax purposes, a C Corp pays corporate taxes, and shareholders pay income taxes on dividends they receive.
Because owners don’t have to be U.S. residents, a C Corp is the best option for international investors and entrepreneurs who want to build a new business in the U.S.
C Corp taxationA C Corp pays taxes twice on income: The business pays corporate taxes, then individual shareholders pay income taxes on any salary they receive, plus dividends they receive from business profits.
This sounds hefty. But the classification may be beneficial for large companies, which can cut their tax bill through a lower corporate tax rate, corporate tax breaks that don’t apply to individual income taxes and splitting profits among several shareholders.
What Is Form the 1120S: U.S. Income Tax Return?
Form the 1120S: U.S. Income Tax Return for an S Corporation is a tax document that is used to report the income, losses, and dividends of S corporation shareholders. Essentially, Form the 1120S is an S corporation’s tax return.
The Schedule K-1 is a form that can be attached to Form 1120S or Form 1065. The Schedule K-1 form identifies the percentage of company shares owned by each shareholder for the tax year and must be prepared for every shareholder.
Who Must File
A corporation or other entity must file Form 1120-S if (a) it elected to be an S corporation by filing Form 2553, (b) the IRS accepted the election, and (c) the election remains in effect. After filing Form 2553, you should have received confirmation that Form 2553 was accepted. If you didn’t receive notification of acceptance or non-acceptance of the election within 2 months of filing Form 2553 (5 months if you checked box Q1 to ask for a letter ruling), take follow-up action by calling 1-800-829-4933. Don’t file Form 1120-S for any tax year before the year the election takes effect.
Relief for late elections. If you haven’t filed Form 2553 or didn’t file Form 2553 on time, you may be entitled to relief for a late-filed election to be an S corporation. See the Instructions for Form 2553 for details.
Termination of Election
Once the election is made, it stays in effect until it is terminated. If the election is terminated, the corporation (or a successor corporation) can make another election on Form 2553 only with IRS consent for any tax year before the fifth tax year after the first tax year in which the termination took effect. See Regulations section 1.1362-5 for details.
Who needs to file a 1065?All partnerships in the United States must submit one IRS Form 1065 unless there was no income or expenditures for the year.
The IRS defines a “partnership” as any relationship existing between two or more persons who join to carry on a trade or business. A partnership is not a corporation. Unlike a corporation, a partnership is not a separate legal entity from the individual owners unless that partnership is also an LLC.
Not sure if your business is a partnership? Most partnerships are spelled out in a formal written agreement called a partnership agreement, and are registered in the state in which they do business. Your partnership agreement might say you’re a general partnership, a limited partnership, or a limited liability partnership.
If your company is an LLC with 2 or more members and has not decided to be taxed as a corporation this year, then you will file taxes as a partnership and you must submit a 1065.
Foreign partnerships with more than $20,000 annual income in the United States, or those who earn more than 1% of their income in the United States, must file Form 1065.