Business Entity Tax Structure Comparison Tool

US Business Entity Tax Structure Comparison

This tool provides a general overview of how different common U.S. business entity structures are typically taxed at the federal level. Understanding these differences is crucial when choosing or evaluating your business structure. State tax treatment can vary.

Note: An LLC's tax treatment depends on its number of members and any election made (e.g., taxed as a Sole Prop, Partnership, S-Corp, or C-Corp).

US Business Entity Tax Structure Comparison

This table summarizes the general federal tax treatment of common U.S. business entities. State tax treatment can vary.

Note: An LLC's tax treatment depends on its members and tax election.

Tax Aspect	Sole Proprietorship	Partnership / LLC (Default)	S-Corporation	C-Corporation
Tax Method	Pass-through (taxed on owner's personal return)	Pass-through (profits/losses passed to partners/members)	Pass-through (profits/losses passed to shareholders)	Corporate tax rate on company profits (separate entity)
Tax Forms (Federal)	Form 1040 Schedule C	Form 1065 (Informational), K-1s to partners/members	Form 1120-S, K-1s to shareholders	Form 1120
Self-Employment / Payroll Tax on Profits	Owner pays self-employment tax on all business profits.	Partners/Members pay self-employment tax on their distributive share of profits and guaranteed payments.	Owner-employee pays payroll tax (Social Security & Medicare) on a "reasonable salary". Remaining profits are not subject to SE/Payroll tax.	Owner-employee pays payroll tax on salary. Corporate profits are not subject to SE/Payroll tax (until distributed as dividends).
Owner Compensation Tax Treatment	Owner takes "draws" which are not considered salary or deductible expenses.	Partners receive "guaranteed payments" (similar to salary) and distributions of profits. Guaranteed payments are deductible by partnership.	Owner-employee receives a W-2 salary (taxable) and distributions of remaining profits (generally not taxable up to basis). Salary is deductible by S-corp.	Owner-employee receives a W-2 salary (taxable). Profits can be reinvested or distributed as dividends (taxable to shareholder). Salary is deductible by C-corp.
Deductibility of Owner Health Insurance & Benefits	Self-Employed Health Insurance Deduction (above the line deduction on 1040). Other benefits not deductible by business.	Partners/Members deduct health insurance on personal return. Other benefits not deductible by partnership.	Health insurance and other benefits for owner-employees (who own > 2%) are deductible by the S-corp, but the value of health insurance is added to the owner's W-2 wages for income tax purposes (but not for payroll tax).	Health insurance and other benefits for owner-employees are deductible by the C-corp and generally not taxable income to the employee.
Tax Filing Complexity	Generally the simplest.	More complex than Sole Prop, requires separate informational return.	More complex than Partnership, requires corporate return and payroll.	Generally the most complex, requires corporate return and potential double taxation considerations.