Can You File Your Personal and Business Taxes Together?

If you’re a small business owner, filing your personal and business taxes together can save time and costs. But not everyone can or should file their personal and business taxes together. The best strategy depends on the type of business structure and how you’ve registered the company with the IRS. Can you file your personal and business taxes together? Below, you’ll find a breakdown of the best options to file your taxes based on business type. 

What’s the Difference Between Personal and Business Taxes?

Every individual aged 18 or older must file personal taxes. Businesses considered separate legal entities must also file business taxes. A business formed as an LLC or a corporation is a separate legal entity. The business owes taxes on all income generated, just as an individual. In pass-through business structures, the business taxes can be passed to the owners and reported on your income tax return.  

In most states, an LLC is automatically considered a pass-through entity; the IRS also considers LLCs as pass-through entities. That means you and your business entity appear as one taxpayer to the IRS. In some cases, you might be required to file information returns, which aren’t taxed directly. Instead, with a pass-through entity, your individual income tax rate applies to all company income. 

If you have an LLC or partnership, you can pass through taxes and file your personal and business taxes together. However, you must file personal and business taxes separately if you have a C corporation. 

In addition, an LLC can elect to be taxed as an S corporation or a C corporation. In that case, the LLC is treated according to its corporation election status. In the case of a C corporation, the business is taxed as a separate entity from its owners. C corporations pay entity-level taxes before passing on earnings to shareholders. This can lead to double taxation. 

Can You File Your Personal and Business Taxes Together?

Can you file your personal and business taxes together? Your business’s structure will determine whether you can file personal and business taxes. Learn more about taxation for a sole proprietorship, partnership, LLC, or corporation based on how you register your business with the IRS.

Sole Proprietorship

A sole proprietorship is not a legal business entity, so business income isn’t separate from your personal income. A sole proprietorship is the most common business type. According to the IRS, it’s a disregarded entity because it does not file a tax return separately from its owners. 

If you’re an independent contractor, a freelancer, or have a single-member LLC, you’ll be taxed as a sole proprietor by default. In that case, your only tax return is Form 1040 and all appropriate schedules. You will report business revenue and deductible expenses on Form 1040 Schedule C.

Partnership

Similar to sole proprietors, if you have a business partnership, it’s considered a pass-through entity. However, partnerships must file an information return so they’re not considered disregarded entities. Partnerships must file Form 1065 to inform the IRS of revenue and tax deduction information.  

With a partnership, earnings are allocated to the partners at agreed-upon percentages. Each partner will report their business income on their individual income tax return. 

IRS Form Schedule K-1 is given to each partner, listing their earnings portion to report. You’ll use the information on Form K-1 to file Form 1040 Schedule E with the IRS as part of your individual income tax return.

Limited Liability Company (LLC)

A limited liability company or LLC can be taxed as a sole proprietorship, partnership, S corporation, or C corporation, depending on the structure you elect. 

A single-member LLC is a disregarded entity by default and is taxed like a sole proprietorship. An LLC with more than one owner is automatically taxed as a partnership. In that case, the forms mentioned above will apply to your business structure. 

However, the LLC owners, called members, may elect to be taxed as either a C corporation or an S corporation. In that case, you’ll need to make the same required tax filings as an S corporation or a C corporation. Learn more about how LLCs are taxed and how LLC tax rates are calculated. 

S Corporation

An S corporation is a pass-through entity that pays taxes through its owners, called shareholders. Similar to partnerships, an S corporation must file an information return. For an S corporation, you must file Form 1120-S to report earnings.

Just like partners in a partnership, shareholders receive a K-1 with their portion of company profits. Shareholders pay their portion of K-1 earnings on Form 1040 Schedule E. S corporations have some significant tax advantages. 

Most notably, S corp shareholders participating in management can be considered employees. That means you can receive a reasonable salary as an S corp shareholder-employee before receiving distributions. 

With an S corp, you can receive a Form W-2, the employee wages statement, and a Form K-1 for distributions, and report both as part of your earnings on your individual income tax return.

C Corporation

There are major differences between C corporations and other business entities listed here. With a C corporation, there’s no option to use it as a pass-through entity; they are always considered separate legal taxpaying entities. C corporations file IRS Form 1120 to report and pay income tax. 

C corporations pay a 21% entity-level tax on taxable earnings, plus applicable state taxes, before passing on the income to their shareholders through dividends. C corporations must distribute Form 1099-DIV to shareholders, who will use the information provided to report dividend income on their personal taxes.

Like an S corporation, C corporation shareholders who manage the company can also be considered employees and earn W-2 wages. If you’re an employee-shareholder of a C corp, you’ll report and pay tax on both W-2 and 1099-DIV earnings.

Pros and Cons of Filing Personal and Business Taxes Together

There are pros as well as cons to filing your personal and business taxes together. When you file everything together, you’ll benefit from simplified tax preparation and filing. You’ll also get the same tax rate for personal and business income. However, in some cases, especially for high earners, you could pay more in personal income tax.

Pros and Cons of Filing Personal and Business Separately

If you file personal and business taxes separately, the preparation time is generally more complex as you must prepare two separate income tax returns. If you hire an accountant for tax preparation, this will also increase costs. 

However, keeping business and personal income is necessary if you have a C corporation. The advantage is that you could earn income as a W-2 employee and a shareholder and even (potentially) save on total taxes. 

Should You File Personal and Business Taxes Together?

Whether you should file personal and business taxes together depends on the type of business entity you have and the tax status you’ve elected for that entity. If you have an LLC, you could file taxes together or separately. 

If you want to ensure you keep clear records throughout the year to make tax season easier, consider doola Books. It offers simple bookkeeping services designed to help busy founders like you. With doola Books, you can streamline bookkeeping and free up valuable time to focus on your core business. Or, get doola’s tax package to save even more time!

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