Business income may include income received from the sale of products or services. For example, fees received by a person from the regular practice of a profession are business income. Rents received by a person in the real estate business are business income. A business must include in income payments received in the form of property or services at the fair market value of the property or services. Sole Proprietorships A business may be organized as a sole proprietorship, partnership, or corporation. A sole proprietorship is an unincorporated business owned by an individual. A sole proprietorship has no legal identity apart from its owner. Business debts are obligations of the owner of the business. A limited liability company (LLC) owned by one individual is treated as a sole proprietorship for federal income tax purposes, unless the owner elects to treat the LLC as a corporation. A sole proprietor files Schedule C (Form 1040 or 1040-SR), Profit or Loss from Business (Sole Proprietorship) PDF to report the income and expenses of the business and reports the net business earnings on Form 1040 series. A sole proprietor who has net earnings from Schedule C of $400 or more must file Schedule SE (Form 1040 or 1040-SR), Self-Employment Tax PDF. A taxpayer uses Schedule SE to figure self-employment tax, which is the sum of the social security and Medicare taxes on self-employment income. A taxpayer also uses Schedule SE to deduct one-half of the self-employment tax. For more information on sole proprietorships, refer to Publication 334, Tax Guide for Small Business. Partnerships A partnership is an unincorporated business organization where two or more persons join to carry on a trade or business, a financial operation or venture. Each person contributes money, property or services in return for a right to share in the profits and losses of the partnership. An LLC with more than one owner is generally treated as a partnership for federal tax purposes, (spouses in a community property state who are the only owners of an LLC and share in the profits of such, can file as a single member), unless the LLC elects to be treated as a corporation. A partnership reports its income and expenses on Form 1065, U.S. Return of Partnership Income PDF. The partnership itself doesn't pay income tax. Each partner receives a Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. PDF, that indicates the partner's distributive share of partnership income, expenses and other items, determined in accordance with the terms of the partnership agreement. Partners report on their income tax returns the amounts reported on the Schedule K-1. For more information, refer to the Instructions for Form 1065 PDF. For more information on partnerships, in general, refer to Publication 541, Partnerships. Corporations The term corporation, for federal income tax purposes, generally includes a legal entity treated as separate from the persons who formed it under federal or state law or the shareholders who own it. It also includes certain businesses that elect to be taxed as a corporation by filing Form 8832, Entity Classification Election PDF. Corporations report their income and expenses, and calculate their tax on Form 1120, U.S. Corporation Income Tax Return PDF. For more information on corporations, refer to Publication 542, Corporations. Corporations that meet certain requirements may elect to be taxed under subchapter S of the tax code by filing Form 2553, Election by a Small Business Corporation PDF. S corporations file Form 1120-S, U.S. Income Tax Return for an S Corporation PDF and are generally not subject to regular income tax. Most income and expenses of an S corporation are passed through to the shareholders on Schedule K-1 (Form 1120-S), Shareholder's Share of Income, Deductions, Credits, etc. PDF. The shareholders report on their income tax returns the amounts indicated on the Schedules K-1. For more information on S corporations, refer to the Instructions for Form 1120-S PDF. LLCs for Federal Tax Purposes A Limited Liability Company (LLC) is a business structure created under state statute. Depending on elections made by the LLC and the number of members, for federal tax purposes, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC owner's tax return (a disregarded entity). For more information, see Limited Liability Company (LLC).