Entity and Tax Basics

Entity types, pass-through taxation, sales tax and setting cash aside — as general information.

Reference Notes

Business entity types and how they are taxed, in general terms: sole proprietorship, LLC, partnership, S corporation election, C corporation

An LLC is a legal form, not a tax status: by default a single-member LLC is disregarded and reports through its owner and a multi-member LLC is taxed as a partnership, but either can elect to be taxed as a corporation or, with an S election, as an S corporation. A sole proprietorship reports through the owner; a partnership files an information return and passes income to its partners; an S corporation passes income through but requires owner-employees to take a reasonable salary; a C corporation pays tax itself and its owners pay again on dividends. The choice affects self-employment tax, owner compensation, what an investor will accept and how the books are kept, and it is a decision to make with a tax adviser and counsel rather than from a web page.

Source: General information; Treas. Reg. 301.7701-3 (entity classification); a tax preparer decides the specificsLast revised September 2026General information, not advice

Sales tax, Arizona transaction privilege tax (TPT), economic nexus, 1099 contractor reporting, W-9

Sales tax a company collects from its customers is a liability owed to the taxing authority rather than revenue when the company elects to present it net, as most do (ASC 606-10-32-2A), and a company must collect and remit it in every state where it has nexus, which since 2018 can be established by sales volume alone. Arizona's transaction privilege tax is legally a tax on the seller for the privilege of doing business there, so it is owed whether or not it was passed on to the customer, and whether it may be presented net is a judgement, because a tax measured on a company's total gross receipts is outside that election. Payments to independent contractors above the annual reporting threshold are reported on Form 1099-NEC; that threshold was raised for payments made after December 31, 2025 by the 2025 federal tax act (Public Law 119-21) and is indexed for inflation from 2027, so an older figure is out of date. The contractor's taxpayer identification number, usually on Form W-9, is collected before the first payment rather than in January. Both are questions of compliance the books have to support and a preparer or a sales-tax specialist has to file.

Source: South Dakota v. Wayfair (2018); IRC 6041 and 6041A as amended by P.L. 119-21 s.70433; A.R.S. Title 42, chapter 5; ASC 606-10-32-2ALast revised September 2026General information, not advice

Estimated taxes and setting cash aside

Owners of pass-through businesses and corporations both generally pay income tax during the year in estimated installments, and a company that does not set the cash aside meets the bill as a crisis. The books can carry a reserve or a separate bank account for it, and the forecast should show the payments on their dates. How much to pay is the preparer's calculation; making sure the cash is there is the accountant's.

Source: General informationLast revised September 2026General information, not advice

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