Which Business Tax Form Fits Your Company: Schedule C vs K-1 vs Form 1120

Quick answer

If you operate as a sole proprietor or a single‑member LLC taxed as a disregarded entity, you generally file Schedule C with your Form 1040. If your business is a partnership or an S corporation, income is passed through to owners on Schedule K‑1s and reported on individual returns. If your business is a C corporation, it files Form 1120 and pays tax at the corporate level. The right form depends on legal structure, payroll needs, and whether you want pass‑through taxation or corporate taxation.

How these forms differ (practical view)

• Schedule C (Form 1040): Used by sole proprietors and many single‑member LLCs to report profit or loss. Income flows to your individual return and is subject to income tax and self‑employment tax. (See IRS: About Schedule C: https://www.irs.gov/forms-pubs/about-schedule-c)
• Schedule K‑1: Issued by partnerships (Schedule K‑1 (Form 1065)) and S corporations (Schedule K‑1 (Form 1120S)) to report each owner’s share of income, deductions, credits, and other items. Owners report K‑1 items on their individual returns and pay tax at their individual rates; certain K‑1 items may also trigger self‑employment tax or basis adjustments. (IRS: About Schedule K‑1: https://www.irs.gov/forms-pubs/about-schedule-k-1)
• Form 1120: Filed by C corporations. The entity pays tax on its taxable income (federal corporate rate is a flat 21% as of 2025). Shareholders pay tax again on dividends—creating double taxation unless profits are paid as reasonable compensation or retained for business use. (IRS: About Form 1120: https://www.irs.gov/forms-pubs/about-form-1120)

Which form fits common business situations

• Freelancers, independent contractors, solo consultants: Schedule C. You report gross receipts, deductible business expenses, and compute net profit subject to income and self‑employment tax. (If net self‑employment income exceeds thresholds, you’ll owe Social Security and Medicare via Schedule SE.)
• Partnerships and multi‑owner LLCs taxed as partnerships: Partnership returns (Form 1065) produce Schedule K‑1s for partners. Each partner reports K‑1 items and may owe tax on their share regardless of cash distributions. See our guide to using Schedule K‑1 for partnerships and S corporations for more detail.
• S corporations: The S‑corp files Form 1120S and issues Schedule K‑1s. Owners usually take a salary subject to payroll taxes and receive distributions that typically avoid self‑employment tax—careful documentation is required to justify officer compensation.
• C corporations: Large or capital‑intensive businesses that prefer retained earnings or different tax planning often elect C‑corporation status and file Form 1120. This creates a separate taxpaying entity.

For deeper reading on each filing pathway, see these site resources:

• Schedule C (Profit or Loss from Business): https://finhelp.io/glossary/schedule-c-profit-or-loss-from-business/
• How to Use Schedule K‑1 for Partnerships and S Corporations: https://finhelp.io/glossary/how-to-use-schedule-k-1-for-partnerships-and-s-corporations/
• Form 1120: U.S. Corporation Income Tax Return: https://finhelp.io/glossary/form-1120-u-s-corporation-income-tax-return/

Key tax consequences to weigh

1. Tax rate and double taxation: C corporations are taxed at the corporate level (21% federal in 2025). Shareholders pay tax on dividends, creating a potential double tax. Pass‑through owners (Schedule C, partnerships, S corps) pay tax at personal rates.
2. Self‑employment tax: Sole proprietors and many partnership income items are subject to self‑employment tax. S‑corp distributions are generally not subject to self‑employment tax, but salaries to owner‑employees are.
3. Estimated tax payments: Pass‑through owners often must make quarterly estimated tax payments to cover income and self‑employment taxes. C corporations make estimated tax payments at the corporate level.
4. Compliance complexity and cost: Form 1120 (and 1120S/1065) typically require more extensive bookkeeping, payroll, and possibly state filings. Schedule C is simpler but offers fewer structural protections unless you operate as an LLC or corporation.

(Author note: In my practice advising small businesses, owners who prioritize tax simplicity and immediate write‑offs often start as Schedule C filers, then convert to S corp or C corp when payroll and liability concerns make incorporation worthwhile.)

When to consider switching entity types

• Your net business income is high enough that payroll tax savings (via S‑corp salary/distribution split) justify the added administrative cost.
• You want to retain earnings in the business without passing income to individual owners (C corp).
• You need liability protection and prefer to formalize operations (LLC taxed as S corp or C corp). Always run a cost/benefit with a tax advisor and an attorney.

Practical checklist to choose the correct form

1. Confirm legal entity: sole proprietor, partnership, LLC, S corp election, or C corp. Your legal registration or tax election generally dictates the return.
2. Review how owners are paid: wages, guaranteed payments, or distributions. This affects payroll, withholding, and self‑employment tax.
3. Project taxable income and compare the tax burden under pass‑through vs corporate taxation. Consider state taxes, which can shift the optimal choice.
4. Estimate compliance costs: payroll services, bookkeeping, and the need for an accountant to prepare partnership, S‑corp, or corporate returns.
5. Decide on timing: changing entity type (for example, electing S corp status) has filing deadlines and procedural requirements—plan ahead.

Common mistakes and how to avoid them

• Using Schedule C for a business that has partners or multiple members. A multi‑member LLC should file as a partnership (Form 1065) unless it elects corporate status. Misfiling triggers amended returns and penalties.
• Ignoring self‑employment tax implications. Many new business owners under‑estimate SE tax; run projections and set aside funds for estimated payments.
• Treating S‑corp owners’ distributions as a substitute for reasonable salary. The IRS scrutinizes unreasonably low salaries—document and justify compensation.
• Missing K‑1 items that affect credits, passive losses, or foreign tax matters. K‑1 carries many footnotes; review them thoroughly before filing your individual return.

Short scenarios (realistic examples)

• Solo web developer (Schedule C): Files Schedule C with Form 1040, claims home office, equipment depreciation, and pays self‑employment tax via Schedule SE.
• Two‑person real‑estate partnership: Partnership files Form 1065 and issues Schedule K‑1s. Each partner reports allocated rental income and deductible expenses on their returns; guaranteed payments may be subject to self‑employment tax.
• Tech start‑up with outside investors: Elects C corporation to facilitate stock classes and investor preferences; files Form 1120 and may retain earnings to fund growth.

Filing and due‑date notes (current as of 2025)

• Schedule C: Filed with individual Form 1040—standard 1040 deadlines apply (usually April 15 unless extended). Pay estimated taxes if you expect to owe.
• K‑1: Partnerships file Form 1065 (generally due March 15) and S corporations file Form 1120S; these issue K‑1s to owners so they can file timely individual returns.
• Form 1120: Corporate return deadlines differ from individual returns; corporations generally file by the 15th day of the fourth month after the tax year ends (check IRS guidance and state deadlines).

Always confirm specific due dates for the current tax year on IRS.gov or with your tax advisor.

Helpful resources

• IRS — About Schedule C: https://www.irs.gov/forms-pubs/about-schedule-c
• IRS — About Schedule K‑1: https://www.irs.gov/forms-pubs/about-schedule-k-1
• IRS — About Form 1120: https://www.irs.gov/forms-pubs/about-form-1120
• FinHelp deep dives: Schedule C guide, K‑1 walkthrough, and Form 1120 overview (links above).

Final recommendations

Choosing between Schedule C, Schedule K‑1, or Form 1120 should start with your legal entity and long‑term goals: liability protection, how you pay owners, and where you want taxable income to fall. For many small owners, starting as a Schedule C filer is simplest; switching to S‑corp or C‑corp can make sense as income, payroll needs, or investor considerations change. Work with a CPA or tax attorney before making elections—small timing mistakes and missed deadlines can be costly.

Disclaimer: This article is educational and not personalized tax advice. For advice tailored to your situation, consult a qualified tax professional or attorney. Author background: I am a tax practitioner with over 15 years advising small businesses on entity selection and tax compliance.