Creating a DBA is a way for a business to create a brand that can be used to do business. DBAs can be used by any kind of business entity so a brief overview will be given on the tax implications of each type of business entity. Please refer to the more in-depth sections on each entity for more information on DBA tax information for each. Links to those sections will be provided within each entity section for your convenience.
DBAs that are owned by one person and do not have an LLC or Corporate formation are considered a sole proprietorship. It is generally a good idea for a sole proprietorship to use a DBA because, in doing so, customers can recognize the DBA is separate and apart from your personal legal name. It helps your business to be taken seriously and creates an image of professionalism. There is no separation between you and your business and therefore all income and losses related to your business are reported on through your personal income tax return. It “passes through” the business and does not need its own tax return to be filed.
Sole Proprietorship DBAs report all business related income and losses on Schedule C. Schedule C is filed along with the Form 1040. Expenses can be deducted as well as costs of other business related items and equipment to offset profit made from the business. It is important to keep in mind that all profits will be taxed.
Self-employment taxes must be paid as well and the entire amount must be paid by themselves. Employees only have to pay half since their employee usually pays the other half. As a consolation, half of what a sole proprietor pays into self-employment tax can be deducted. Schedule SE is filed in conjunction with the Form 1040 to report self-employment taxes along with the Schedule C.
DBA Tax – Partnerships
The use of DBAs is also common with partnerships. These, like sole proprietorships, are not considered to be separate taxable entities by the IRS and are taxed under same “pass through” theory. Each partner will be responsible for paying their own taxes on profits and losses on their individual tax returns. It is very similar in taxation as sole proprietorships in that way. Partners do not need to issue a W-2 is they are not employees.
One of the main differences in how partnerships are taxed from sole proprietorships is the requirement to file a Form 1065. This form is used to report financials for the operation of the partnership, such as income, gains, losses and credits. Partnerships allocate profits depending on how the partnership agreement dictates. The information that is used to fill out the Form 1065 comes from the Schedule K-1. A Schedule K-1 will be given to each partner so that the partnership has the information to fill out the Form 1065.
LLCs can also utilize DBAs. There is no limit on how many DBAs an LLC can use. This is an easy way for an LLC to run multiple businesses that may not be related to each other, while all under the umbrella of one LLC. Using an umbrella LLC to run multiple DBAs makes things easier for financial purposes as only one EIN is required for the LLC. Filing taxes is also easier using multiple DBAs as only one tax return is necessary as income from each DBA is reported on a single tax filing for the LLC. The IRS sees the LLC as one business for tax filing purposes, no matter how DBAs operate under it.
For a more in-depth look at how LLCs are taxed, please read through the section on LLCs – Taxation.
C Corps also frequently use DBAs in the same way that LLCs do to simplify tax filing, as DBAs do not require separate tax filings. Please see C-Corporations – Taxation for more information on how C-Corporations are taxed.
Nonprofits typically use DBAs for each project that they may undertake in order to differentiate each one. Be careful that each DBA operating under a NFP is being utilized for a non-profit purpose to prevent any issues with the NFP losing tax exemption status. As is the case with C-Corps, only one tax filing is necessary. Explore the section on NFP-Taxation for how NFPs are taxed.