If your business made no money this year, whether you have to file taxes depends on how the business is structured, not on whether it earned a dollar. C corporations, S corporations, and partnerships have to file every year they legally exist. Sole proprietors and single-member LLCs get more room, but even they usually come out ahead by filing a loss. Skipping the return can cost far more than the paperwork ever would.
C Corporations File Every Year, No Exceptions
A domestic C corporation must file Form 1120 every year, even with zero revenue and zero activity.1Internal Revenue Service. Instructions for Form 1120 (2025) The IRS treats the corporation as a separate taxpayer from the moment it comes into existence until it is formally dissolved under state law and a final return is filed. There is no dormancy exception. If the entity still legally exists, it owes a return.
Partnerships and S Corporations Also Must File
Partnerships, including multi-member LLCs taxed as partnerships, file Form 1065. S corporations file Form 1120-S. Both are information returns: the entity itself doesn’t pay tax, and income or losses pass through to owners on Schedule K-1.2Internal Revenue Service. About Form 1065, U.S. Return of Partnership Income
S corporations must file Form 1120-S if a valid S election is on file. No income threshold, no activity threshold.3Internal Revenue Service. 2025 Instructions for Form 1120-S – U.S. Income Tax Return for an S Corporation Partnerships get one narrow break: a domestic partnership that neither receives any income nor incurs any expenses treated as deductions or credits doesn’t have to file.4Internal Revenue Service. Instructions for Form 1065 In practice this rarely applies. Almost every partnership pays something deductible during the year, whether a state registration fee, a bank charge, or accounting costs. If you spent anything, you file.
Sole Proprietors and Single-Member LLCs
Sole proprietors and single-member LLCs don’t file a separate business return. Business income and expenses go on Schedule C, attached to your personal Form 1040. Whether you must file turns on a few thresholds.
The most common trigger is net self-employment earnings of $400 or more. Cross that line and you owe self-employment tax, and you must file a return with Schedule C.5Internal Revenue Service. Self-Employed Individuals Tax Center Even below $400, you still have to file if any other requirement on your personal return applies, such as wages or other income that force a 1040.6Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
If your business took in gross receipts of $5,000 or more, the IRS expects a Schedule C even when expenses wiped out all your profit and net earnings landed well below $400.7Internal Revenue Service. Instructions for Schedule C (Form 1040)
What about a year with no income at all and only expenses? You generally aren’t required to file in that case. You almost certainly should anyway, for the reason below.
Why You Usually Want to File the Loss
A business loss is a tax asset. Reporting a net loss on Schedule C or receiving one on a K-1 reduces your adjusted gross income, which lowers tax on any other income you earned and can restore eligibility for credits and deductions that phase out at higher incomes.
If the loss exceeds all your other income for the year, the leftover can become a net operating loss you carry forward indefinitely to offset future income.8Internal Revenue Service. Instructions for Form 172 That is especially valuable for a startup that expects to turn profitable later. There is a cap: NOLs arising after 2017 can only offset up to 80% of taxable income in any carryforward year.9Office of the Law Revision Counsel. 26 U.S. Code 172 – Net Operating Loss Deduction
For S corporation shareholders and partners, filing also protects your basis, the running total of what you’ve invested in the entity. You can only deduct losses up to your basis, and skipping a year makes that number harder to track when you eventually sell your interest or take distributions.
One caution: if your business shows losses year after year with no path to profitability, the IRS may argue it is a hobby rather than a business. The agency uses a rebuttable presumption that an activity is for profit if it turns a profit in at least three of five consecutive years.10Internal Revenue Service. Is Your Hobby a For-Profit Endeavor? Hobby losses generally can’t offset other income the way business losses can. Keep professional records if you’re deducting losses over multiple years.
What Skipping the Return Actually Costs
Penalties depend on the return type, and the numbers get uncomfortable fast for pass-through entities.
Partnerships and S Corporations
Late-filing penalties for Form 1065 and Form 1120-S run per owner, per month. For returns due in 2026, the rate is $255 per partner or shareholder for each month late, up to 12 months.11Internal Revenue Service. Failure to File Penalty The penalty applies whether or not the business owed any tax. A four-member LLC that files Form 1065 seven months late owes $7,140 on an information return that reports zero income.
C Corporations and Sole Proprietors
For Form 1120 and Form 1040 with Schedule C, the failure-to-file penalty is 5% of unpaid tax per month, capped at 25%. If the return is more than 60 days late, a minimum penalty of $525 (for returns due in 2026) or 100% of the unpaid tax, whichever is less, applies.11Internal Revenue Service. Failure to File Penalty With truly zero tax owed, the percentage penalty produces nothing. The minimum can still hit if the IRS decides you owed something you didn’t realize.
First Time Abate
If this is your first slip, ask about First Time Abate. You may qualify if you filed the same type of return on time for the three prior years and have no unresolved penalties on those returns.12Internal Revenue Service. 20.1.1 Introduction and Penalty Relief FTA covers failure-to-file penalties for partnerships and S corporations under IRC 6698 and 6699, as well as individual and corporate returns. No special form is required. Call the IRS or attach a written request to the late return.
The Loss You Can’t Use
A quieter cost: an NOL you never reported on a timely return is an NOL you can’t carry into a profitable future year. When the business finally makes money, you’ll pay tax on income you should have been able to offset.
Information Returns You May Still Owe
A business that earned nothing can still owe information returns for payments it made. If you paid a contractor $2,000 or more for services, you must file Form 1099-NEC.13Internal Revenue Service. 2026 General Instructions for Certain Information Returns The threshold increased from $600 to $2,000 starting with 2026 payments. Form 1099-MISC is required if you paid $600 or more in rent, or $600 or more to an attorney, among other categories.14Internal Revenue Service. About Form 1099-MISC, Miscellaneous Information These obligations exist independent of your own income.
State Filings Don’t Care About Your Income
Most states require LLCs and corporations to file annual reports or pay franchise taxes to keep the entity in good standing, regardless of activity. Fees range from nothing to several hundred dollars. Skip them and the state can administratively dissolve the entity, taking the liability protection with it. Check your Secretary of State for deadlines and fees.
How to Stop the Annual Filing Cycle
If the business is truly finished, closing it down is the only way to end the return obligation. Simply stopping operations doesn’t do it.
- File every return still outstanding. The IRS won’t close the account until all required returns are in and any taxes are paid.15Internal Revenue Service. Closing a Business
- Check the “Final return” box on your last Form 1120, 1120-S, or 1065.16Internal Revenue Service. Instructions for Form 1120 – U.S. Corporation Income Tax Return
- Issue final W-2s, file final employment tax returns (Form 941 or 944, and Form 940), and file any required 1099-NECs.15Internal Revenue Service. Closing a Business
- Cancel your EIN by letter to the IRS, including business name, EIN, address, and reason for closing.15Internal Revenue Service. Closing a Business
- If you’re a corporation, file Form 966 within 30 days of adopting a resolution to dissolve, with a certified copy of the resolution attached.17eCFR. 26 CFR 1.6043-1 – Return Regarding Corporate Dissolution or Liquidation
- On the state side, file articles of dissolution or a certificate of cancellation with your Secretary of State. Until you do, the state will keep expecting reports and fees.
Hold onto your business records for at least three years after the final return, and four years for employment tax records.