Food Stamps

1115.040.01 Partnerships, S Corporations, and Corporations

A partnership is a type of business in which multiple individuals manage the business and are equally liable for its debts. Each partner shares equal responsibility for the company’s profits and losses, and its debts and liabilities. The partnership does not pay income taxes. Each partner reports his/her share of the business’s profits and losses on his/her individual tax return.

Common forms used to verify this income are:

  • 1040 – U.S. Individual Income Tax Return;
  • 1065 – U.S. Return of Partnership Income;
  • Schedule K-1(Form 1065) – Partner’s Share of Income, Deductions, Credits, etc. (summarizes each shareholder’s separate shares);
  • Schedule D (Form 1065) – Capital Gains and Losses; and
  • 1099 – This is a form used by businesses to report certain business transactions to the IRS.
    EXAMPLE: 1099 B reports the sale of stocks, bonds, etc., 1099 DIV reports dividends paid, and 1099 G reports tax refunds.

S Corporations are set up to limit liability and allow owners to pay income tax as a sole proprietor or partner. Owners are considered employees and are not considered self-employed. They are not entitled to the costs of producing income.

Common forms used to verify this income are:

  • 1040 – U.S. Individual Income Tax Return;
  • 1120S – U.S. Income Tax Return for an S Corporation;
  • Schedule K-1(Form 1120) – Shareholder’s Share of Income, Deductions, Credits, etc. (summarizes each shareholder’s separate shares);
  • Schedule K (Form 1120S) – Shareholder’s Share of Income, Deductions, Credits, etc. (summarizes the Corporation’s income, credits, deductions, etc. reportable by the Shareholders); and
  • Schedule D (Form 1120S) Capital Gains and Losses and Built-In Gains.
  • NOTE: Schedule K is a section on the 1120S – U.S. Income Tax Return for an S Corporation.

In a Corporation, the owner is considered an employee of the corporation and receives a salary. The Corporation pays taxes on profits left after salaries, bonuses, overhead, and expenses are paid. Self-employment expenses are not allowed.

Common forms used to verify this income are:

  • 1040 – U.S. Individual Income Tax Return;
  • 1120 – U.S. Corporation Income Tax Return;
  • 1120A – U.S. Corporation Short Form Income Tax Return;
  • Schedule D (Form 1120) – Capital Gains and Losses; and
  • Schedule M-3 (Form 1120) – Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More.