Business Tax Information On Your Personal Tax Return
Including Schedule C or Schedule K-1 on Your Form 1040
Question: How Do I Include My Business Tax Information on My Personal Tax Return?
No matter what type of business you own, even if you own a corporation, the income you receive from your business goes directly to your personal tax return. That means that the profits from the business you receive each year must be reported and paid as part of your personal 1040.
The most important thing to remember is that your income from all sources - business and personal - ultimately ends up somewhere on your personal tax return. Each source of income has its box on page 1 of Form 1040.
Two Ways Business Income Goes to Your Personal Tax Return
There are two general business types when it comes to entering your business tax income onto your personal tax return.
Pass-through taxes. The net income of your business is passed through directly to your business for all businesses except corporations.
Corporate dividends. If your business is a corporation (not an S-corporation), you are a shareholder and you receive income from the business in the form of dividends on the shares you own. This dividend income is included on your personal tax return. If you are an employee of the corporation, your employment income is included on your personal tax return as employment income.
In General - Business Income into Personal Taxes
How this business tax information gets into your personal return depends on the type of business you own.
- If your business is a sole proprietorship or a single-member LLC, you report your business income on a Schedule C of your 1040.
- If your business is a partnership or a multiple-member LLC, you report your business income on a Schedule K-1 (Form 1065) of your 1040.
- If your business is an S corporation, you report your business income on a different type of Schedule K-1 (Form 1120-S) of your 1040.
- If your business is a C corporation, you report dividend income on your personal tax return. If you work in the corporation, you are considered an employee and this income is taxed as employment income.
Don't worry; all will be explained. Below are the details for each business type.
Filing Taxes as a Sole Proprietorship or Single-Member LLC
Enter the information on Net Income or Loss, as calculated on your Schedule C on Line 12 (Business Income or Loss) of your personal 1040. The net profit or loss of your business is used along with any other income you might have to calculate your adjusted gross income and your personal taxes.
Filing Taxes as a Partner or LLC Member
If you are filing business taxes as a partner in a partnership or member of a multiple-member LLC (which is taxed as a partnership), you receive a Schedule K-1 (Form 1065) from your partnership. Schedule K-1 (Form 1065) reports all income from the partnership, including dividends, distributions, interest, royalties, and capital gains. Your Schedule K-1 reflects your income from your portion of the profits (or losses) of the partnership.
For example, if you are in a partnership with one other person, and you have agreed to split profits 50/50, a $100,000 profit would give you $50,000, recorded on your Schedule K-1.
Schedule K-1 information is obtained from the partnership tax return ( Form 1065) which was previously completed and filed separately with the IRS. The totals on Form 1065 are divided among the partners based on their share of the partnership, as detailed in the partnership agreement or operating agreement (for an LLC). No taxes are paid on Form 1065; it is only an information return.
Schedule K-1 includes several pieces of information which must be included in the correct place on Schedule E - Supplemental Income and Loss. Then the total Schedule E information is entered onto your personal Form 1040 on Line 17.
Special Situation for Spouses as Partners
If you and your spouse are partners in a business, you may qualify to file your business tax return as a Qualified Joint Venture (QJV) In this case, you may be able to file two Schedule C's instead of a partnership return. Your eligibility to elect QJV status depends on your state and other circumstances.
Depending on how you agree to split the profits, your individual Schedule C's would reflect your percentage of the income (and expenses) from the business. Both Schedule C forms are filed with your tax return (depending on how you file).
Filing Taxes as an S corporation Owner
If you have income as an owner (shareholder) of an S corporation, you file a different type of Schedule K-1 for Form 1120S. The information is similar to that of the Schedule K-1 for a partnership, and it's based on your share of the various kinds of income from the S corporation.
The S corporation files a business tax return on Form 1120-S), then the net income is split between the owners, on the Schedule K-1's.
Filing Taxes as a Corporate Shareholder
The corporation pays the income taxes on its income, but if you receive any dividends as a shareholder, you must pay taxes on that dividend income. Dividends are taxed either as ordinary income or as capital gains, on Schedule B of your personal tax return. (Yes, this is double taxation.) You will receive a 1099-DIV showing your income from dividends. Check with your tax professional for more details on how to report dividend income.
If you work in the corporation as an employee, you will receive a W-2 Form showing your income for the tax year. The W-2 information goes into your personal tax return on Line 7 (Wages, salaries, tips).
Don't forget self-employment taxes. In addition to paying income taxes on your business income, you may also have to pay self-employment taxes (Social Security/Medicare for self-employed). If you are the owner of a corporation or S corporation, you aren't considered to be self-employed.
Your business income is used to determine the amount of self-employment tax. You must insert the information into your net income from Schedule C, your share of partnership income from Schedule K-1, or from S corp income on Schedule K-1 (1120-S). Schedule SE uses this information to calculate your self-employment tax liability.
Mail Your Tax Return on Time
Make sure you file your tax return so it is received by the IRS no later than the due date. Check these two articles:
Getting Help With Business Tax Filing
It's best to have a tax preparer help you with this work, or to use a tax software program that will allow you to enter the information on a blank K-1 and have the information automatically placed in the correct section of your 1040.