Lets learn more about how income is taxed and what tax documents flow from the business to the owners.
Lets learn more about how income is taxed and what tax documents flow from the business to the owners.
Embedded Files
TYPE OF COMPANIES VS TAX DOCUMENTS:
TYPE OF COMPANIES VS TAX DOCUMENTS:
1. LLC (Default Tax Treatment)
1. LLC (Default Tax Treatment)
Single-Member LLC
Single-Member LLC
The IRS treats it as a "disregarded entity."
Business files:
Usually no separate federal business return (unless special elections are made).
Business activity is reported on the owner's personal return.
Owner receives/files:
Reports income and expenses on:
Schedule C (business income)
Schedule E (rental income)
Schedule F (farm income)
Attached to Form 1040.
Example
Example
Business profit = $100,000
Owner reports:
Schedule C: $100,000 profit
Form 1040: $100,000 taxable income
Pays:
Income tax
Self-employment tax
Multi-Member LLC
Multi-Member LLC
By default, taxed as a partnership.
Business files:
Form 1065 – Partnership Return
Owners receive:
Schedule K-1 (Form 1065)
Owner files:
Form 1040
Reports K-1 income on personal return
Example
Example
LLC profit = $100,000
Partner A owns 50%
Partner B owns 50%
Business files:
Form 1065
Owners receive:
K-1 showing $50,000 each
Each owner reports $50,000 on Form 1040.
2. S Corporation
2. S Corporation
An S Corp is a tax election, not a legal entity type. An LLC or corporation can elect S Corp status.
Business files:
Business files:
Form 1120-S
Owners receive:
Owners receive:
Schedule K-1 (Form 1120-S)
Owner files:
Owner files:
Form 1040
Reports K-1 income
Key Difference
Key Difference
Owners working in the business must receive a reasonable salary.
Owner receives:
W-2 salary
K-1 profit distribution
Example
Example
Business profit before owner compensation = $120,000
Owner salary = $60,000
Business profit after salary = $60,000
Owner receives:
W-2 = $60,000
K-1 = $60,000
Generally:
Payroll taxes apply to W-2 wages.
K-1 profit is not subject to self-employment tax.
3. C Corporation
3. C Corporation
A C Corporation is a separate tax-paying entity.
Business files:
Business files:
Form 1120
Corporation pays:
Corporation pays:
Corporate income tax
Owners receive:
Owners receive:
W-2 (if employed)
Dividends (if distributed)
Tax Documents to Owners
Tax Documents to Owners
Employee-owner:
W-2
Shareholder receiving dividends:
Form 1099-DIV
Example
Example
Corporate profit = $100,000
Corporation pays federal corporate tax.
Remaining profit distributed as dividends.
Owner receives:
1099-DIV
Owner pays personal tax on dividends.
This is known as double taxation:
Corporation pays tax.
Shareholder pays tax on dividends.
Quick Comparison
Quick Comparison
Item Single-Member LLC Multi-Member LLC S Corp C Corp
Business Return Usually none Form 1065 Form 1120-S Form 1120
Owner Tax Form Schedule C K-1 K-1 + W-2 W-2 and/or 1099-DIV
Tax Paid by Business No No No Yes
Tax Paid by Owner Yes Yes Yes Yes
Self-Employment Tax Usually all profit Usually all active income Salary only Salary only
Double Taxation No No No Yes
Document Flow Summary
Document Flow Summary
Single-Member LLC
Single-Member LLC
Business Income → Schedule C → Form 1040
Multi-Member LLC
Multi-Member LLC
Form 1065 → K-1 → Owners' Form 1040
S Corporation
S Corporation
Form 1120-S → K-1 + W-2 → Owners' Form 1040
C Corporation
C Corporation
Form 1120 → Corporation Pays Tax → 1099-DIV/W-2 → Owners' Form 1040
For small business owners in the U.S., the most common progression is:
Single-Member LLC → LLC taxed as S Corporation → C Corporation (only when there is a specific business reason such as raising investors or retaining earnings).
Typical Taxes for a Virginia Corporation with Employees:
If your company is incorporated and operates in Virginia, you would commonly pay or remit:
Tax Employer Pays? Employee Pays?
Federal Corporate Income Tax (C Corp) ✅ ❌
Virginia Corporate Income Tax ✅ ❌
Social Security (Employer) ✅ ❌
Medicare (Employer) ✅ ❌
FUTA ✅ ❌
Virginia Unemployment (SUTA) ✅ ❌
Federal Income Tax Withholding ❌ (withheld) ✅
Virginia Income Tax Withholding ❌ (withheld) ✅
Employee Social Security ❌ (withheld) ✅
Employee Medicare ❌ (withheld) ✅
Sales Tax (if applicable) Collected from customers and remitted ❌
U.S. FICA payroll tax rates are:
Tax Employee Employer Total
Social Security (SS) 6.2% 6.2% 12.4%
Medicare 1.45% 1.45% 2.9%
Total FICA 7.65% 7.65% 15.3%
Additional details
Additional details
Social Security wage base (2026): $184,500. Wages above this amount are not subject to the 6.2% Social Security tax.
Medicare: There is no wage limit. All Medicare wages are subject to the 1.45% Medicare tax.
Additional Medicare Tax: Employees pay an extra 0.9% on wages over $200,000 in a calendar year. The employer withholds this amount but does not match it.
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