IRS Publication 583 — Starting a Business and Keeping Records
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To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Each of you must file a separate Schedule C (Form 1040) and a separate Schedule SE (Form 1040). For more information, see Qualified Joint Venture in the Instructions for Schedule SE (Form 1040).
Corporations. In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. A corporation can also take special deductions. C corporations. The profit of a C corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. However, shareholders cannot deduct any loss of the corporation. For more information on corporations, see Pub. 542. S corporations. An eligible domestic corporation (or a domestic entity eligible to elect to be treated as a corporation) can avoid double taxation (once to the corporation and again to the shareholders) as long as it meets certain tests and elects to be treated as an S corporation. Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss. For more information on S corporations and the tests that need to be met to be eligible to elect to be an S corporation, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120 -S, U.S. Income Tax Return for an S Corporation.
Limited liability company. A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. The members of an LLC are not personally liable for its debts. An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as separate from its owner by applying the rules in Regulations section 301.7701-3.
More information. For more information on LLCs, see the Instructions for Form 8832, Entity Classification Election. Publication 583 (12-2024) 3
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