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1. Does a business have to file a return?

All businesses located in or working in Middletown must file a return annually regardless of the organization's form (C-Corporation, S-Corporation, Partnership, or Sole Proprietor) and regardless of whether the business had income or a loss for the year. Generally, a business will use Form BR (business return) to report its income and expenses. However, if you are employed as an individual but earn incidental income from a side business, you may simply include this in your individual return, Form IR, rather than fill out a separate business return (refer to Section A, question 6).

2. How should S-Corporations and Partnerships report their profits?

Unlike federal tax requirements for Middletown income tax purposes profits of S-Corporations and Partnerships are not passed through to shareholders or individual partners for inclusion in their individual returns (in most cases). An exception to this rule is a resident partner involved in a non-resident partnership, which isn't taxed (report on Form IR). S-Corporations and Partnerships and Partnerships must report and pay the Middletown income tax as a business using Form BR.

3. What income should an Incorporated business report?

An Incorporated business should report all income earned for work performed in the City. If you performed work both inside and outside the City limits, an allocation may need to be made on page 2, Schedule Y of Form BR to determine the taxable portion to the City of Middletown.

4. What income should an Unincorporated (sole proprietor) business report?

The income that should be reported depends on whether both the owner and the business are resident or non-resident. For additional details view the Sole Proprietor Income to Report page.

5. How is taxable income determined for businesses?

The determination of "Taxable income" for the local tax generally follows IRS rules. For a list of the exceptions view the Business Taxable Income page.

6. How are net operating losses treated?

A Corporation or Partnership may carry forward the loss and can offset it against its future taxable income for up to five years.

For Unincorporated businesses, if you operated more that one Middletown business, a net operating loss can be used to offset profits from any other type of Middletown business you operate. The remainder of the loss that could not be offset to other business profits can be carried forward to be used as a future offset for up to five years. Net operating losses cannot be used to offset wages.

7. Can I combine reporting for multiple business' on a single tax return?

Yes, you may combine the results on one Form BR. Where the businesses are relatively small, (see Section A, question 6), you may use Form IR. In both cases attach copies of all applicable federal reporting forms (Schedule C, E, etc.).