What Tax Forms Are Used When Forming a Business in MN?

Note: Income tax forms identified here apply to the 2010 tax year. Amendments to the Minnesota tax laws and federal Internal Revenue Code may change these requirements.

Sole Proprietorship

Federal

The sole proprietor reports income and expenses from the business on Schedule C or Schedule C-EZ (Form 1040) and any related forms and schedules. The net income or loss from the business is then transferred to the proprietor’s individual Form 1040. The sole proprietor uses Schedule SE to report net self employment income for purposes of computing the Social Security and Medicare self employment tax.

Minnesota

There is no separate form forreporting proprietorship income. To compute Minnesota income tax, the proprietor uses Form M-1, the individual income tax form. Acopy of the federal Form 1040, including a copy of Schedule C or Schedule C-EZ, plus Schedule SE, if appropriate, must be attached to Minnesota Form M-1. Minnesota does not impose a self employment tax.

Partnership

Federal

The partnership files Form 1065, which is an information return. No tax is paid by the partnership with this return. Other forms and schedules may be required, including Schedules K and K-1. Individual partners use Schedule E (Form 1040) which is prepared with information from their Schedule K-1 of Form 1065, to report their distributive share of partnership income, deductions, credits and losses on their individual Form 1040. Schedule SE (Form 1040) is used to compute Social Security and Medicare self employment tax.

Minnesota

The partnership files Form M3. Taxes paid by the partnership with such return are: Minnesota Minimum Fee; Minnesota Composite Income Tax; and Withholding for Nonresident Partners, which is described in the Tax Rates section of this Guide. Form M1 is used to compute the partners’ individual income tax. Schedules KPI and KPC are supplemental K1 type schedules used to report modifications to federal tax computations of partnership income and the other information a partner needs to complete the Minnesota individual income tax return. Schedule KC is used for computing the Minnesota Composite Income Tax. Schedule MW3NR is used for the Withholding for Nonresident Partners. Minnesota does not impose a self employment tax.

C Corporation

Federal

The C corporation reports its income, deductions and credits, and computes its tax, on Form 1120 or Form 1120-A. Supporting forms and schedules may be required. If the corporation issues dividends, it must annually send its shareholders Form 1099-DIV, stating the amount of dividends paid. A copy also is filed with the Internal Revenue Service and the Minnesota Department of Revenue. The shareholder reports dividends received from the corporation on his or her individual Form 1040.

Minnesota

The corporation files Minnesota Form M-4. Dividends paid to shareholders also must be reported to the Department of Revenue. Form M-1 is used to compute the shareholder’s individual Minnesota income tax.

S Corporation

Federal

The S corporation files Form 1120S and supporting forms and schedules, including Schedules K and K-1 (Form 1120S). The S corporation generally is not separately taxed. Individual shareholders report their share of the S corporation’s income, deductions and credits on their individual Form 1040, using information contained on the Schedule K-1.

Minnesota

For Minnesota income tax purposes, the S corporation files Form M8. Taxes paid by the S corporation with that return are:

  • Minnesota S Corporation Taxes, which apply only if the S corporation is paying federal income tax;
  • Minnesota Minimum Fee;
  • Minnesota Composite Income Tax; and
  • Withholding for Nonresident Shareholders, which is discussed in the Tax Rates section of this Guide.

Form M-1 is used to compute the shareholder’s individual income tax. Schedule KS is a supplemental K-1 type schedule used for reporting modifications to federal income tax computations of S corporation income and the other information a shareholder needs to complete the Minnesota individual income tax return. Schedule KC is used for computing the Minnesota Composite Income Tax. Schedule MW3NR is used for the Withholding for Nonresident shareholders.


CREDITS: This is an excerpt from A Guide to Starting a Business in Minnesota, provided by the Minnesota Department of Employment and Economic Development, Small Business Assistance Office, Twenty-eighth Edition, January 2010, written by Charles A. Schaffer, Madeline Harris, and Mark Simmer. Copies are available without charge from the Minnesota Department of Employment and Economic Development, Small Business Assistance Office.

This is also part of a series of articles on How to Pick the Right Business Entity Type. These articles help you select the right business type for your circumstances.