updated September 1, 2023 · 3min read
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.
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.
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).
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.
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 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.
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.
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.
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.
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.
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.
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.
by Jeff Johnston
Jeff Johnston has been an attorney and CPA in Texas for over 25 years. Areas of legal practice included tax and close...
Considering an LLC for your business? The application process isn't complicated, but to apply for an LLC, you'll have to do some homework first.
September 6, 2023 · 11min read
Setting up a power of attorney to make your decisions when you can't is a smart thing to do because you never know when you'll need help from someone you trust.
September 7, 2023 · 14min read
It's easy to create a new LLC by filing paperwork with the state. But to set yourself up for success, you'll also need to think about your business name, finances, an operating agreement, and licenses and permits. Here's a step-by-step guide.
September 5, 2023 · 13min read