Partnership and Corporation Structuring

Preparing tax returns for a business and consulting firm involves several key steps to ensure compliance with tax laws and maximize deductions. Here’s an overview of the process:

1. Determine Your Tax Entity

Your business structure dictates how you interact with the IRS. Here is a breakdown of the filing requirements:

Individual & Pass-Through Entities

In these structures, business income "passes through" to your personal tax return.

  • Sole Proprietorship: Reported via Schedule C on your personal Form 1040. Simple and direct.

  • Partnership: The business files Form 1065, but owners pay taxes on their share of profits via Schedule K-1.

  • Corporation (C Corp or S Corp):

    • C Corps file Form 1120. Taxes are paid at the corporate level, and shareholders are taxed on dividends received.

    • S Corps file Form 1120-S. Income, deductions, and credits are passed through to shareholders, and they report it on their personal returns.

  • LLC: An LLC can be taxed as a sole proprietorship, partnership, or corporation, depending on its structure and elections made.

2. Collect Necessary Documents

Before you begin, organize your records into these three core categories to ensure an accurate filing.

Income & Revenue

  • Income Statements: Total revenue from sales and consulting.

  • Tax Forms: Copies of any 1099 forms received from clients.

  • Bank Statements: Used to verify all incoming deposits.

Expenses & Deductions

  • Operating Costs: Office rent, supplies, equipment, and marketing.

  • Travel & Professional Fees: Meals, business travel, legal, and accounting costs.

  • Special Deductions: Documentation for mileage and home office usage.

  • Proof of Purchase: Keep all receipts to back up your claims.

Employment & History

  • Payroll Records: W-2 and W-3 forms for employee wages.

  • Contractor Pay: 1099 forms issued to independent contractors.

  • Prior Returns: Reference your previous year's filing (especially for Corps/Partnerships).

3. The Write-Up & Book Cleanup

Before we file, we perform what accountants call a "Write-Up." Think of this as a deep-cleaning for your financial records. We don't just take your numbers at face value; we verify their accuracy to protect you from IRS red flags.

What This Means for You:

  • Reconciliation: We cross-reference your bank statements against your recorded income to ensure every penny is accounted for.

  • Adjusting Entries: We fix common errors, such as personal expenses accidentally categorized as business costs, or missing depreciation entries.

  • General Ledger Integrity: We organize your "books" into a clean, professional format that provides a clear audit trail.

  • Financial Accuracy: This process transforms your raw receipts and bank data into a formal set of financial statements that the IRS requires.

4. Maximize Your Deductions & Credits

Lower your taxable income by claiming these common business expenses.

The "Big Three" for Consultants

  • Home Office Deduction: If you work from a dedicated home space, you can deduct a portion of your rent/mortgage and utilities.

    • Tip: Use the Simplified Method ($5 per sq. ft. up to 300 sq. ft.) for a quick $1,500 deduction.

  • 100% Bonus Depreciation: In 2026, you can deduct the full cost of equipment (computers, furniture, even heavy SUVs over 6,000 lbs) in the year you buy them, rather than over several years.

  • Section 179 Expensing: Similar to depreciation, this allows you to expense up to $2.56 million in business property immediately.

Daily Operating Expenses

  • Professional Services: 100% of fees paid to your lawyer, accountant, or business consultants.

  • Travel & Client Meals: * Travel: 100% of airfare and lodging.

    • Meals: 50% for client meetings where business is discussed.

    • Note: Office snacks and "overtime meals" for employees are now 0% deductible in 2026.

  • Insurance & Retirement: 100% of business liability premiums and your contributions to SEP-IRAs or 401(k) plans.

  • Self-Employment Tax: You can deduct 50% of your self-employment tax as an adjustment to your personal income.

5. Final Step: Calculate & File

Different business structures have different "Finish Lines." Match your entity to the correct forms and deadlines below.

Pass-Through Entities

Business profit is reported on your personal return.

  • Sole Proprietor / Single-Member LLC

    • Form: Schedule C (attached to Form 1040)

    • Deadline: April 15, 2026

  • Partnership / Multi-Member LLC

    • Form: Form 1065 (Business) + Schedule K-1 (to Partners)

    • Deadline: March 17, 2026

  • S Corporation

    • Form: Form 1120-S (Business) + Schedule K-1 (to Shareholders)

    • Deadline: March 17, 2026

Corporate Entities

The business is a separate taxable entity.

  • C Corporation

    • Form: Form 1120

    • Deadline: April 15, 2026

    • Note: If you expect to owe more than $500, you must make quarterly estimated payments.