Does my business need its own tax return?

Dealing with taxes probably isn’t the reason you started your business. All those official-sounding terms like “separate return” or “pass-through entity” can make your head spin. If you’ve ever asked yourself, “Does my business need its own tax return, or can I handle it along with my personal taxes?” you’re not alone.

Understanding your business’s tax-filing responsibilities isn’t just about checking boxes. It keeps you compliant with IRS rules, helps you avoid penalties, and reduces unnecessary stress. 

By the time you reach the end of this article, you’ll know whether your business needs a separate tax return. More importantly, you’ll know how to find the answer without second-guessing yourself. 

How does my business entity type affect my tax return obligations? 

The biggest factor is how your business is set up. There isn’t one rule. It depends entirely on your business’s legal structure: 

• Sole Proprietorship: You operate alone, and there’s no separate business tax return. You report all business income and expenses on your personal tax return. 
• Single-Member LLC: Typically treated the same as a sole proprietorship. The business doesn’t file its own federal tax return; you include the information on your personal return. 
• Partnership: A partnership files its own return (Form 1065), but the business itself doesn’t pay taxes. Instead, income or losses pass through to the partners’ individual returns. 
• Multi-Member LLC: Most of the time, it’s treated like a partnership. The business files an informational return and provides a Schedule K-1 to each owner, who reports the information on their personal return. 
• C-Corporation: A C-Corp files its own tax return (Form 1120) and remains separate from its owners, both legally and financially 
• S-Corporation: An S-Corp files a separate return (Form 1120S), but like a partnership, income or losses flow through to owners via a Schedule K-1 

If you’re the only owner, reporting is usually more straightforward. With multiple owners or incorporation, expect additional filing steps. 

Why does it matter if my business is separate from me? 

The way your business is structured determines who the IRS recognizes as responsible for reporting income and paying taxes. 

If the business is not legally distinct, such as a sole proprietorship, freelance operation, or single-member LLC, the income and expenses are reported directly on your personal tax return. 

In contrast, if the business is its own legal entity, like a corporation, partnership, or multi-member LLC, the IRS requires a separate business tax return. The business’s income or losses are passed through to the owners and reported on their individual returns, often using documents like Schedule K-1. 

Individual Return vs Business Return  

Understanding when your business needs a separate tax return is one of the most common points of confusion for business owners. 

You report business income directly on your personal tax return if you operate as a: 

• Sole proprietor 
• Single-member LLC: Business activity is included on Form 1040, Schedule C, alongside your other personal income 

You file both a business and a personal tax return if your business is a: 

• Partnership (Form 1065) 
• Multi-member LLC (usually Form 1065) 
• S-Corporation (Form 1120S) 
• C-Corporation (Form 1120) 

For partnerships, multi-member LLCs, and S-Corps: 

The business files its own return and issues each owner or shareholder a Schedule K-1, which shows their share of income to be included on their personal return. 

For C-Corps: 

The corporation files its own tax return. If you’re paid as an employee, you’ll receive a
W-2. If dividends are distributed, you’ll receive a 1099-DIV. 

Do I have to file state or local business tax returns, too?   

In addition to federal filings, many states require businesses to file separate tax returns, especially for corporations and LLCs. Local governments may also have requirements such as business licenses, gross receipts taxes, or additional paperwork. 

If you operate in multiple states or countries, you might need to file returns in each jurisdiction. Each has its own tax rules and filing requirements. 

It’s important to review your state, city, and county obligations, particularly if your business has expanded or sold to customers in different regions. 

How can I quickly figure out my business’s tax filing requirements? 

If you’re reviewing your paperwork and feeling unsure, here’s a straightforward checklist: 

1. Check your business structure: If you’re not sure, check your formation documents or your state’s business registry 
2. Count your owners: Are you the only owner, or do you have partners? With LLCs, the number of owners affects filing. 
3. Review your current tax returns: Are you only filing personally, or is there a separate business return? 
4. Check local requirements: State, city, and county websites often provide checklists specific to businesses 
5. Consult a tax professional: When in doubt, asking a professional can save time and avoid costly mistakes 

You don’t have to make guesses. Once you know your business structure, the number of owners, and where you operate, the rest typically becomes much clearer. 

What happens if I miss a filing or make a mistake? 

Missing a filing deadline or making an error can feel overwhelming, but it’s important to know what’s really at stake: 

• IRS or State Penalties: Filing late, or not filing, can result in fines and interest charges 
• Legal consequences: Prolonged noncompliance can lead to larger legal issues 
• Business standing: Falling behind may hurt your ability to get loans or maintain your company’s official “good standing.” In some cases, it could even result in losing the legal protections tied to your business structure. 

Staying on top of tax filings is far easier than trying to fix problems later. If you’ve missed a filing, the best next step is to contact a tax professional for guidance. 

The Bottom Line 

If you’re feeling uncertain about your tax filing requirements, you’re not alone. Many business owners face questions as their businesses grow and change. 

Whether your business needs its own tax return depends on your entity type, number of owners, and where you operate. Understanding these factors protects your business, keeps you compliant, and helps you approach tax season with confidence. 

Review your business structure and check your current filing process. If you’re unsure, don’t wait; schedule a free call with DiMercurio Advisors. We’ll help you clarify your tax obligations and set you up for a smoother, less stressful tax season.