Filing taxes for a small business with no income: What you should know

Various business situations may lead you to report no income for an entire tax year. You may have formed your LLC before opening your business. You may have stopped all business activities at your corporation, but you haven't officially filed your Articles of Dissolution yet. Whatever the reason, there are certain questions you must answer to determine if you need to file a business tax return.

What is your business type?

The most important aspects to consider when determining if you need to file a business tax return are how you form your business and the tax election you choose.

Sole proprietorship

If your business is a sole proprietorship, you record all income and expenses from your own personal tax return on the Profit or Loss From Business (Sole Proprietorship) (Form 1040, Schedule C).

Partnership

A partnership files an informational return on a U.S. Return of Partnership Income (Form 1065). The profit or loss then passes through to the partners, who receive a Partner's Share of Income, Deductions, Credits, etc. (Schedule K-1) with their share of the partnership's income, deductions, and credits. Each partner reports this information on their own personal tax return and pays tax on their share of the profit or loss.

C corporation or S corporation

A corporation files taxes on a U.S. Corporation Income Tax Return (Form 1120), and an S corporation files on a U.S. Income Tax Return for an S Corporation (Form 1120-S). Some corporations are exempt from income tax under Section 501. Most exempt organizations file an informational Return of Organization Exempt from Income Tax (Form 990).

Limited liability company

Limited Liability Companies (LLCs) have the luxury of being taxed in a variety of ways. It could be treated for tax purposes as a sole proprietorship, a partnership, or a corporation.

• A single-person LLC is disregarded as an entity by the Internal Revenue Service (IRS). The LLC's owner reports income and expense on his or her tax return on Schedule C, like a sole proprietorship.
• An LLC with two or more members is automatically treated as a partnership by the IRS. An informational Form 1065 is filed to report the LLC's income and expenses. Profit or loss passes through to the members, and each member receives a K-1 with his or her share of the LLC's income, deductions, and credits.
• An LLC with two or more members may elect to be taxed as a C corp. or S corp. It must make this election known to the IRS by filing an Entity Classification Election (Form 8832).

Do you need to file a business tax return with no income?

Based on your business type, you may or may not have to file a tax return if your business has no income for the entire tax year.

Sole proprietorship

Even if your business has no income during the tax year, it may still benefit you to file a Schedule C if you have any expenses that qualify for deductions or credits. If you have no income or qualifying expenses for the entire tax year, there is no need to file a Schedule C for your inactive business.

Partnership

If the partnership has any transactions that qualify for deductions or credits, an informational Form 1065 should be filed. If your partnership has no income or expenses that may qualify for deductions or credits, you do not need to file a Form 1065.

C corporation or S corporation

Typically, a C corporation or S corporation must file an income tax return on taxable income during the tax year unless it is exempt from taxes under section 501.

Limited liability company

Whether or not you need to file a tax return for an LLC with no income depends on your LLC's tax election. If you are a single-member LLC, you will apply the same standards as a sole proprietorship. If your LLC is taxed like a partnership, apply the rules for filing an informational partnership return. If it is taxed like a C corp. or S corp., you will need to file an income tax return regardless of whether you have any income.

State tax obligations

States have various tax reporting obligations that are independent of federal tax filing requirements. Be sure to check with your jurisdiction to determine whether you must file a state tax return.

If you have an inactive business with no intentions to ramp back up in the future, it is a good idea to formally dissolve your business.