When you start a business, one of the first and most fundamental decisions you make is choosing a legal structure. It’s a choice that impacts everything from your personal liability to your ability to raise capital. But nowhere is its influence more profound than on your taxes. Your business structure dictates which tax forms you file, when your deadlines are, and how you pay taxes on the money you earn.
As you prepare for the 2025 tax season, understanding the relationship between your legal entity and your tax obligations is essential. Are you a sole proprietor enjoying simplicity, or an S-Corp benefiting from pass-through taxation with a twist? The answer determines your entire approach to filing.
This guide will break down how the most common business structures—Sole Proprietorship, LLC, Partnership, S-Corp, and C-Corp—affect your 2025 tax filing. We’ll cover the forms, deadlines, and tax treatment for each, helping you navigate the season with clarity.
For a complete guide to all things tax-related this year, make sure to check out our comprehensive 2025 Small Business Tax Season Toolkit.
Understanding Pass-Through Taxation
Before we dive into the specific structures, it’s important to grasp the concept of “pass-through” taxation. Most small businesses in the U.S. are pass-through entities. This means the business itself does not pay income tax. Instead, the profits (or losses) “pass through” to the owners’ personal tax returns, and the owners pay income tax at their individual rates. This avoids the “double taxation” found in C Corporations.
Now, let’s see how this plays out across the different structures.
1. Sole Proprietorship
This is the simplest and most common business structure. If you are a freelancer, consultant, or run a one-person business and haven’t registered as another entity, you are a sole proprietor by default.
- How Taxes Work: You and your business are considered a single entity for tax purposes. You report all business income and expenses on your personal tax return.
- Key Tax Form: Schedule C (Form 1040), Profit or Loss from Business. This form is filed along with your personal Form 1040. You list your gross income and then subtract your business expenses to determine your net profit.
- Tax Liability: Your net business profit is added to any other personal income you have (like a spouse’s salary or investment income). You pay both regular income tax and self-employment taxes (Social Security and Medicare, currently 15.3%) on this profit.
- 2025 Tax Deadline: April 15, 2026.
The Bottom Line: The sole proprietorship is simple to manage, but it offers no liability protection, and you are responsible for self-employment taxes on 100% of your profits.
2. Limited Liability Company (LLC)
An LLC is a hybrid structure that provides the liability protection of a corporation with the tax flexibility of a sole proprietorship or partnership. For tax purposes, the IRS doesn’t have a specific tax return for an LLC. Instead, an LLC is taxed like another business structure.
- Single-Member LLC: By default, the IRS treats a single-owner LLC as a “disregarded entity,” meaning it’s taxed exactly like a sole proprietorship. You will file a Schedule C with your personal tax return.
- Multi-Member LLC: The IRS treats an LLC with two or more owners as a partnership. The business must file Form 1065, U.S. Return of Partnership Income.
The Power of an Election: An LLC can also elect to be taxed as an S-Corp or a C-Corp by filing a special form with the IRS. This is a common strategy for growing businesses looking to optimize their tax situation.
The Bottom Line: The default LLC structure is simple for taxes, but its real power lies in the flexibility to choose how it’s taxed as the business evolves.
3. Partnership
A partnership is a business owned by two or more people. There are general partnerships, where all partners are equally involved, and limited partnerships, which have a mix of active and passive owners.
- How Taxes Work: Like a multi-member LLC, a partnership is a pass-through entity. The business itself does not pay income tax.
- Key Tax Forms:
- Form 1065, U.S. Return of Partnership Income: This is an informational return where the partnership reports its income, deductions, and credits.
- Schedule K-1: The partnership prepares a Schedule K-1 for each partner. This form details each partner’s share of the business’s income, deductions, and credits.
- Tax Liability: Each partner uses the information on their Schedule K-1 to report their share of the business profits on their personal Form 1040. They then pay income tax and self-employment taxes on those profits.
- 2025 Tax Deadline: March 16, 2026. This is a month earlier than the personal tax deadline to give partners time to receive their K-1s before filing their own returns.
The Bottom Line: Partnerships allow for pass-through taxation among multiple owners but require a separate business tax return and have an earlier deadline.
4. S Corporation (S-Corp)
An S Corporation is not a business structure itself, but rather a special tax election that can be made by an LLC or a C-Corp. It combines the liability protection of a corporation with the benefits of pass-through taxation, but with a key difference from partnerships or sole proprietorships.
- How Taxes Work: Profits pass through to the owners’ personal returns, but the S-Corp structure allows owners who work in the business to be treated as employees.
- Key Tax Forms:
- Form 1120-S, U.S. Income Tax Return for an S Corporation: The business files this informational return.
- Schedule K-1: Similar to a partnership, the S-Corp issues a K-1 to each shareholder detailing their share of the profits.
- Tax Liability: This is where S-Corps are unique. Owners must pay themselves a “reasonable salary” for the work they do. This salary is subject to regular payroll taxes (Social Security and Medicare). Any remaining profits can be distributed to shareholders as dividends, which are not subject to self-employment taxes. This can lead to significant tax savings.
- 2025 Tax Deadline: March 16, 2026.
The Bottom Line: The S-Corp is a powerful tax-saving tool for profitable businesses but comes with stricter administrative rules, including running payroll and setting a reasonable salary.
5. C Corporation (C-Corp)
The C Corporation is a completely separate legal and tax entity from its owners. It’s the default structure for most large, publicly-traded companies but is also used by some small businesses, particularly those looking to raise venture capital.
- How Taxes Work: The C-Corp is the only structure on this list that is not a pass-through entity. The corporation pays taxes on its profits at the corporate tax rate (currently a flat 21%).
- Key Tax Form: Form 1120, U.S. Corporation Income Tax Return.
- Tax Liability (Double Taxation): Here’s the catch. After the corporation pays taxes on its profits, it can distribute the remaining earnings to shareholders as dividends. The shareholders must then pay personal income tax on those dividends. This is known as “double taxation.”
- 2025 Tax Deadline: April 15, 2026.
The Bottom Line: While C-Corps face double taxation, they offer benefits like the ability to retain earnings in the business for growth and are more attractive to certain types of investors.
Choosing the Right Structure Is a Strategic Decision
Your business structure is not set in stone. A business that starts as a sole proprietorship can become an LLC and later elect S-Corp status as it grows and becomes more profitable. The key is to evaluate your structure regularly and consult with legal and tax professionals to ensure it aligns with your long-term goals.
Making the right choice can save you thousands of dollars in taxes, while the wrong one can lead to unnecessary costs and compliance headaches. Understanding these fundamental differences is the first step toward a more strategic and successful 2025 tax season.
Ready to learn more about preparing for a successful filing? Explore our complete 2025 Small Business Tax Season Toolkit for checklists, deadlines, and more.