Tax Education: Business Entities Overview

A type of partnership where at least one partner has limited liability and no active role in management.

Partners in an LP who are responsible for managing the business and have unlimited liability for its debts.

Partners in an LP who contribute capital but have limited involvement in management and liability.

The amount of financial risk a partner is exposed to for a business's debts.

A formal document filed with the state to establish a limited partnership.

The process of a business making money beyond its initial expenses.

The act of being actively involved in managing a business.

The process of forming a legal partnership.

A business structure where each partner has personal liability protection, but is still responsible for their own actions and their investment in the partnership.

A type of business structure specifically designed for licensed professionals like lawyers, doctors, and accountants, where they can practice together with limited personal liability.

A business structure that is created by law and involves registering with the state.

In an LLP, partners are generally not personally liable for debts or the malpractice of other partners, but they are responsible for their own actions and their share of the partnership's liabilities.

A partnership agreement is a document that outlines the terms of the partnership, including the roles, responsibilities, and obligations of each partner.

A partnership can be considered a legal entity even without a formal agreement, especially when spouses operate a business together.

A partnership is a business structure where two or more individuals agree to share risks and responsibilities in a business venture.

A business structure where all partners are involved in management and share profits and losses based on their agreed upon contribution.

A corporation that files its own income tax return (Form 1120) and pays taxes on its profits. Profits distributed to shareholders as dividends are subject to double taxation (at the corporate level and again at the shareholder level).

A special type of corporation that avoids corporate-level taxation. Its income, losses, deductions, and credits are passed through directly to its shareholders, similar to a partnership.

A business entity with limited liability for its owners but flexibility in tax treatment. Its tax status depends on the number of owners and its election.

An LLC with a single owner is treated for federal tax purposes as if it were a sole proprietorship. Its income and expenses are reported directly on the owner's personal tax return.

An LLC with multiple owners can elect to be taxed as a corporation. This means it will file its own corporate income tax return and pay taxes on its profits.

An LLC with multiple owners can be taxed as a partnership. This means its income, losses, deductions, and credits are passed through to its partners, who then report them on their personal tax returns.

A corporation is allowed to deduct certain expenses that sole proprietorships are not. These special deductions can reduce the corporation's taxable income.

The Tax Cuts and Jobs Act changed the way C corporations are taxed in 2017. They now pay a flat rate of 21% on their profits.

Payments made to corporations are typically exempt from reporting on Form 1099, unless they are made by incorporated attorneys or in the course of a trade or business.

Form 1099 is used to report payments made in the course of trade or business, not for personal transactions.

Payments made by credit card or through online payment platforms (e.g., PayPal) are typically reported on Form 1099-K by the payment settlement entity, not by the payer.

Payments to individuals for personal services, like painting a personal residence, are not reportable on Form 1099.

Form 1099-NEC is used to report non-employee compensation payments, such as payments to independent contractors, when the payer is involved in a business transaction.

Payment settlement entities (like PayPal and Stripe) use Form 1099-K to report payments processed through their platforms.

Rideshare drivers often receive a Form 1099-K because their payments are processed by third-party networks like Uber and Lyft, which act as payment settlement entities.

A driver typically receives a Form 1099-K if they earn over $20,000 in gross earnings and they process more than 200 transactions through the rideshare platform.

A person performing services for a business who is not considered an employee and typically pays their own taxes.

A person who works for a company and is considered an employee for tax purposes. They are subject to withholding for income, employment, and FUTA taxes.

A special category of workers who are classified as employees for social security purposes, even though they are not considered traditional employees for other reasons.

A category of workers treated as self-employed for federal tax purposes, despite being considered employees for some other purposes. Examples include direct sellers and licensed real estate agents.

A form issued by the employer to employees, which summarizes their income and taxes withheld during the year.

A form issued by the employer to independent contractors, which summarizes their income for the year.

A tax that is withheld from an employee's paycheck and paid to the government by the employer.

A tax paid by employers on the wages of their employees. It funds unemployment benefits for those who lose their jobs.

Any transaction where a business receives a cash payment of $10,000 or more from a single transaction, or multiple related transactions. This includes cash, cashier's checks, traveler's checks, and foreign currency.

Any business that receives a cash payment over $10,000 within a single transaction or related transactions must file Form 8300 within 15 days of receiving the payment.

Form 8300 is used to report cash transactions over $10,000 to the IRS. It helps track large cash transactions that could potentially be used for illegal activities.

The business filing Form 8300 needs to provide the customer with a written statement by January 31st of the following year confirming the transaction was reported to the IRS.

Coin, currency, traveler's checks, and cashier's checks are all considered cash for Form 8300 reporting. Bank transfers, credit card payments, and ACH transactions are not included.

A business that receives a cash payment over $10,000 needs to verify the customer's identity to complete Form 8300. This includes obtaining their driver's license or other valid identification information.

Transactions made by individuals or businesses for personal reasons are not subject to Form 8300 reporting. The transaction needs to be considered a business transaction.

A business transaction is any transaction carried out by a business, and does not include transactions of an individual. If an elementary school teacher sells her car as a private individual, it's not subject to Form 8300.