1.3 Basic Individual & Corporate Tax Models

4 types of business entities

Sole Proprietorships (flow through entitiy)

Partnerships (flow through entity)

S corporations (flow through entitiy)

C corporations (tax-paying entity) (2 layers of tax)

Types of returns

Tax-paying entities:

• Individual (Form 1040)

• C Corporation ( Form 1120)

• Estates & Trusts Income (Form 1041)

Flow-through Entities

• Sole Proprietorship (Schedule C Form 1040)

• Partnership (Form 1085) (Informational returns)

• S Corporation (Form 11205) (Informational returns)

Flow-through Entities

• Sole Proprietorship (Schedule C Form 1040)

• Partnership (Form 1085) (Informational returns)

• S Corporation (Form 11205) (Informational returns)

Tax-paying entities:

• Individual (Form 1040)

• C Corporation ( Form 1120)

• Estates & Trusts Income (Form 1041)

Individual Tax Model

Gross Income $xx,xxx

Less: Deductions FOR adjusted gross income (xxx)

Adjusted Gross Income (AGI) $x,xxx

Less: Deduction FROM adjusted gross income

• Greater of itemized deductions or the standard deduction (xx)

• Qualified business income deductions (Sec 199A) (xx)

Taxable Income $x,xxx

Times: Tax Rates

Gross Income Tax Liability

Less: Tax credits

Net Tax Liability

Plus: Additions to tax

Less prepayments and tax withheld

Tax due or refund

Gross income tax liabilty

How much the individual owes for the year

Corporate Tax Model