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Frequently Asked Tax Questions

Small Business/Self-Employed/Other Business - Entities: Sole Proprietor, Partnership, Limited Liability Company/Partnership (LLC/LLP), Corporation, Subchapter S Corporation


Rev. date: 1/2010


Can a husband and wife run a business as a sole proprietor or do they need to be a partnership?

previous topic occurrence Form 1040 (Schedule SE) next topic occurrence
previous topic occurrence Husband-wife Business next topic occurrence
previous topic occurrence New Trade or Business next topic occurrence
previous topic occurrence Partnership next topic occurrence
previous topic occurrence Profit or Loss from Business (Sole Proprietorship) next topic occurrence
previous topic occurrence Publication 541 next topic occurrence
previous topic occurrence Self-employment next topic occurrence

For a business to be classified as a sole proprietorship:
A married couple who jointly own and operate a business may elect for each spouse to be treated as a sole proprietor by choosing to file "as a qualified joint venture":

Rev. date: 1/2010


Are partners considered employees of a partnership or are they self-employed?

previous topic occurrence Compensation, Wage, Salary next topic occurrence
previous topic occurrence Employment Tax next topic occurrence
previous topic occurrence Partnership next topic occurrence
previous topic occurrence Publication 541 next topic occurrence
previous topic occurrence Self-employment next topic occurrence
previous topic occurrence U.S. Return of Partnership Income next topic occurrence


Rev. date: 1/2010


I recently formed a limited liability company (LLC). The LLC has no employees. Do I need a separate Federal Tax ID number for the LLC?

Application for Employer Identification Number
previous topic occurrence Federal Employer Identification Number next topic occurrence
previous topic occurrence Identification Number next topic occurrence
previous topic occurrence Individual Taxpayer Identification Number next topic occurrence
previous topic occurrence Limited Liability Company next topic occurrence
previous topic occurrence New Trade or Business next topic occurrence
previous topic occurrence P3402 next topic occurrence

If you are the sole owner of the LLC and the LLC has no employees, you will not need a separate Federal Tax ID number.
If you are not the sole owner of the LLC, you will need a separate Federal Tax ID number for the LLC.

Rev. date: 1/2010


For IRS purposes, how do I classify a limited liability company? Is it a sole proprietorship, partnership or a corporation?

previous topic occurrence Limited Liability Company next topic occurrence
previous topic occurrence P3402 next topic occurrence
previous topic occurrence Partnership next topic occurrence
Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent
previous topic occurrence Self-employment next topic occurrence

A limited liability company (LLC) is an entity:
If the LLC has:
If the LLC does not make a classification election, a default classification of disregarded entity (single-member LLC) or partnership (multi-member LLC) will apply. The election referred to is made using the Form 8832 (PDF), Entity Classification Election. If a taxpayer does not file Form 8832 (PDF), a default classification will apply.

Rev. date: 1/2010


Must a partnership or corporation file a tax form even though it had no income for the year?

previous topic occurrence Corporation next topic occurrence
previous topic occurrence Partnership next topic occurrence
U.S. Corporation Income Tax Return
previous topic occurrence U.S. Return of Partnership Income next topic occurrence

A domestic partnership must file an income tax form unless it neither receives gross income nor pays or incurs any amount treated as a deduction or credit for federal tax purposes.
A domestic corporation must file an income tax form whether it has taxable income or not.

Rev. date: 1/2010


Can you give me plain English definitions for the following: (1) a closely held corporation, (2) a personal holding corporation, and (3) a personal service corporation?

previous topic occurrence Corporation next topic occurrence
previous topic occurrence Personal Service Corporation (PSC) next topic occurrence
Section 280H Limitations for a Personal Service Corporation (PSC)

Generally, a closely held corporation is a corporation that:
The definitions for the terms "directly or indirectly" and "individual" are in Publication 542, Corporations.
A personal holding company is:
The Income Test states that at least 60% of the corporation's adjusted ordinary gross income for the tax year is from dividends, interest, rent, and royalties.
The Stock Ownership Test states that at any time during the last half of the tax year, more than 50% in value of the corporation's outstanding stock is owned, directly or indirectly, by 5 or fewer individuals.
Refer to the Form 1120, Schedule PH Instructions for more information and a list of exceptions.
A personal service corporation is a corporation where: