Selecting a corporate structure is crucial when establishing your business. Understand how each structure impacts taxation, aiding in informed decisions.


Most types of corporations, including C corps, are taxed similarly as separate tax-paying entities by the IRS. They’re taxed on profits and can claim business deductions. Consequently, corporations often face double taxation: once on profits and again on shareholder dividends.

Non-profit organizations, though also considered corporations, undergo distinct tax treatment. Non-profits can seek tax-exempt status from the IRS but must adhere to stringent profit usage regulations to maintain this status.

Corporations demand meticulous record-keeping and reporting. When opting for this business structure, partnering with a professional business accountant ensures financial records meet requisite standards.

Sole Proprietorships

For many first-time business owners, sole proprietorship is a popular business designation. This type of business is easy to set up and can allow you to test out your business idea before establishing a more formal business structure. They’re also much simpler to manage from a tax standpoint, because your business’s profits and losses are typically reported on your personal tax return; you simply fill out a Schedule C and Form 1040 and file them along with the rest of your return, and your business’s taxes are complete.


Two common partnership types are limited partnerships (LPs) and limited liability partnerships (LLPs), differing mainly in legal liability. However, tax-wise, they’re handled similarly. Partnerships undergo pass-through taxation, where profits and losses pass to partners.

Each partner receives a K-1 form annually, detailing income or loss for individual tax returns. Using Schedule E, partners report their share of profit or loss. Reported income is subject to individual income tax brackets and self-employment tax, with losses often deductible.

For “limited partners,” their profit or loss share is slightly handled differently. They report it as passive income or loss, not subject to self-employment taxes. However, there are limitations on passive loss deductions.

Limited Liability Companies

The final category for business designations is limited liability companies (LLCs). Similar to partnerships, LLCs are pass-through entities. However, because an LLC can have a single owner or multiple business partners, they can be taxed in different ways.

Single-member LLCs are taxed in the same manner as sole proprietorships; the business owner reports the business’s income using a Schedule C and Form 1040, and files it with their personal tax return. For multiple-member LLCs, profits and losses are passed through to all partners; partners receive a Schedule K-1 and report the profits and losses on a Schedule E, alongside their personal tax returns.

As we mentioned, taxation is only one factor to keep in mind when selecting a corporate structure for your new business. If you have any questions regarding which designation is right for your company, or if you need professional accounting services for your business, contact Witts CPA today to schedule an appointment with one of our expert business accountants.