EA PART 2 — BUSINESSES: CHEAT SHEET

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SOLE PROPRIETORSHIPS

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PARTNERSHIPS

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Basis (Outside): ↑ by income, contributions, share of ALL liabilities; ↓ by losses, distributions Pass-Through: No entity tax; income/losses/credits flow to K-1

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C CORPORATIONS

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S CORPORATIONS

Requirements:

• ≤ 100 shareholders (US citizens/residents, trusts, estates only)

• One class of stock (voting differences OK)

• Election: Form 2553 (by March 15 or Dec 31 prior year)

Tax: Form 1120-S → K-1 to shareholders; pass-through (no entity tax) Basis: Stock + direct loans; loss deduction capped at basis Compensation Rule: Shareholder-employees must take reasonable salary (FICA); distributions above salary scrutinized

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LIMITED LIABILITY COMPANIES (LLCs)

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SE Tax: Same as general partners (distributive share + guaranteed payments)

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EMPLOYER ID NUMBER (EIN)

Required For: Corporations, partnerships, LLCs with employees, any entity with employment/excise tax returns, estates/trusts Form: SS-4 (apply online at IRS.gov)

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BUSINESS STARTUP & ORGANIZATIONAL COSTS

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Applies To: Startup costs (§195) & organizational costs (§248); pre-opening ads, training, salaries qualify if same-type as post-opening deductions

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WORKER CLASSIFICATION

Common Law Test (IRS 20 Factors)

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Rule: No single factor determinative; look at totality. Written contract ≠ automatic contractor status.

Statutory Employees (Deemed Employees)

• Driver-agents (food, beverage, laundry, dry cleaning)

• Full-time life insurance agents

• Home workers (materials supplied, return to business)

• Traveling salespersons (orders for resale, single employer)

*Receive W-2; no income tax withholding (FICA only)*

Statutory Non-Employees (Deemed Contractors)

• Direct sellers (outside permanent retail)

• Licensed real estate agents (commission-based)

• Companion sitters

*File Schedule C; no withholding*

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PAYROLL TAXES (2025)

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Item	Detail
Return	Schedule C (Form 1040)
Income	Subject to income tax + SE tax (15.3% on ~92.35% of net profit)
SE Tax Deduction	50% above-the-line adjustment
Expenses	All ordinary & necessary §162 deductions (vehicle, home office, supplies, wages)
Type	Liability	Tax Filing
General (GP)	Unlimited (all partners)	Form 1065 → K-1 to partners
Limited (LP)	Unlimited (GPs); Limited (LPs)	Form 1065
LLP / LLLP	Protected from partners' wrongful acts	Form 1065
Item	Detail
Return	Form 1120
Tax Rate	Flat 21%
Dividends to Shareholders	Double tax (corp → dividend to shareholder)
Qualified Dividend	Capital gain rates (0/15/20%) if from domestic corp, held >60 days
DRD (Dividends Received Deduction)	<20%: 50%; 20–80%: 65%; >80%: 100%
§351 Contribution	No gain if 80%+ control, stock only
Entity	Default Tax Treatment	Can Elect
Single-Member	Disregarded (Schedule C)	Corp or S corp (Form 8832)
Multi-Member	Partnership (1065)	Corp or S corp
Threshold	Amount	Rule
First-Year Deduction	Up to $5,000	Deductible in year business begins
Amortization	Remainder	Over 180 months
Phase-Out	$50,000 threshold	Deduction ↓ $1 per $1 over $50K
Control Type	Employee Indicators	Contractor Indicators
Behavioral	Training, direction of work, sequence control	Work method chosen by worker
Financial	Unreimbursed expenses, paid hourly/salary	Tools/equipment, work for multiple businesses, profit/loss opportunity
Relationship	Permanence, benefits, integral to business	Temporary, no benefits, results-only
Tax	Employee	Employer	Wage Base	Notes
SS (Social Security)	6.2%	6.2%	$176,100	Combined 12.4% on earnings
Medicare	1.45%	1.45%	Unlimited	Combined 2.9% on all wages
Add'l Medicare	0.9%	—	$200K (single)	Employee only, no employer match
FUTA	—	6.0%	$7,000/employee	Employer only; credit up to 5.4% → 0.6% effective

Total FICA Per Person: 15.3% (7.65% each) up to SS wage base

Trust Fund Recovery Penalty (TFRP)

100% penalty on unpaid withheld income tax & employee FICA Liable: Responsible persons (authority over payroll collection/payment) Can be: Officers, owners, partners, employees with payroll authority, check-signers ⚠️ Personal liability (not dischargeable in bankruptcy)

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FORM 1099-NEC

Required: Payments ≥ $600 to individual/