How is an Entrepreneur Taxed?

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HOW IS TAXATION DONE?

Taxation is done on four types of business

C CORPORATION-

How are profits taxed?

Profits are taxed at a corporate rate. The profits are solely owned by the parents and it should not be included on the standardized financial aid forms. However, one can include your assets and the liabilities

The owner of the corporation must file an IRS1120

S CORPORATION-

Here, the owner has to report his/her assets and liabilities, along with the profits in the financial aid form.

What needs to be done?

The owner has to file an IRS 1120S.

GENERAL PARTNERSHIP-

The parents report their profit and losses on schedule E of the 1040.

While applying for the financial aid, the owner reports his/her profits and losses along with the assets and liabilities (in the need analysis form).

SOLE PROPRIETOR-

A farmer can be treated as a sole proprietor.

What needs to be done?

The owner reports profits and losses to the IRS on schedule F of 1040. He/she generally reports the profits and losses along with the assets and liabilities (in the need analysis form).

Farmers who dwell in their farm, and who can claim on schedule F that “they materially participated in the operations of the farm”, should never include the value of the family farm under assets and liabilities.

NOTE-

Irrespective of what business you have, one should never report the gross revenues on the financial firms as they reduce your deductible expenses. Your net profits or losses are the only parameters that are considered.

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