Business Tax Returns: What Is the Difference Between the Various Types?
| Publication year | 2018 |
| Author | Leslie Dawson, CPA |
Leslie Dawson, CPA
Leslie O. Dawson is the owner of the Dawson CPA Firm in Walnut Creek, California. She is a Certified Public Accountant (CPA), a Certified Valuation analyst (CVA), a Certified in Financial Forensics (CFF) and is Accredited in Business Valuations (ABV). She earned her B.A. degree cum laude from Sonoma State University and her M.S. degree from Golden Gate University. Ms. Dawson has more than 30 years of experience in public and private accounting. She is involved with the California Society of CPAs, currently serving as chair of the annual "Tax Issues In Divorce Mini-Conference." She has served as chair of the statewide Family Law Section and the statewide Family Law Conference (2000). She has also served in various charitable and civic organizations, including being appointed in 2011 to a task force for the City of Walnut Creek to develop recommendations for fiscal policies.
Businesses can be taxed in various ways. The business entity's form impacts the manner in which its financial transactions are conducted (or should be conducted) and reported. The following are the various forms of business tax returns and some mechanics explaining how income is reported.
Please note that personal items can be disguised and deducted as business expenses in any of these entities. There are also shared expenses such as cell phone and auto which will require an assessment of the business and personal use to apportion the costs (if not already done so by the business). Finally, a business can pay a personal expense and properly charge it as an owner draw rather than a business deduction. To evaluate these items and whether they have been appropriately categorized, attorneys and their experts should obtain the business's general ledgers or its electronic bookkeeping software backup.
This is the most informal form of business entity. The business activity is reported on the Schedule C of the owner's personal tax return. The business's assets and debts are not reported for tax purposes, and there may or may not be a separate business cash account. There is also nothing in the tax return showing how much of the business profit is actually used or drawn out by the owner.
Furthermore, it is not uncommon find minimal segregated records for a Schedule C business, making it more difficult to sort out the business and personal expenses within the reported activity.
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