Understanding the legal entities for the purpose of income taxation is very important. Separate legal entities can enter into contracts, buy assets, borrow money, and sue or be sued in court.

Individual

An individual is a separate legal entity because they can do all of these things and must file a return and pay taxes. An individual must file their return and pay taxes before April 30 for the last fiscal year. For example, for the fiscal year-end on Dec 31, 2017, the due date for the return filing will be April 30th, 2018.

Corporation

A corporation is a separate legal entity because it can do all of these things and must file a return and pay taxes. A corporation can choose any fiscal year-end as long as the does not exceed 53 weeks. Corporate can file their tax return within six months from the end of the fiscal year. For example, for the fiscal year-end on Dec 31, 2017, the due date for the return filing will be June 30th, 2018.




Partnership

A partnership can be considered a legal entity because it can enter into a contract, buy assets, borrow money and sue or be sued in court. However, for tax purpose, a partnership is not a person and hence not subject to tax. A partnership firm does not file a tax return, instead, the profit and losses of the partnership are allocated to partners based on their share and partners pay the tax.

General partners (i.e., not limited partners) are personally liable for the losses or liabilities of the partnership firm. Because of this reason partnership is not fully a separate legal entity. General partners unlimited liabilities is the reason to prefer corporations over the partnership to conduct business operations. A partnership must have Dec 31 year-end if any of the partners are individuals.

Trusts

Trusts are not separate legal entity because the trust property is owned by the trustee (i.e., not the trust). But for tax purposes trust is a taxpayer and must file a tax return. Trust must have calendar year-end and are taxed as individuals. Trust must file their return within 90 days after the trust’s year-end.