Combined Vs. Consolidated Returns

Consolidated and combined forms apply to different legal entities.

While the terms "combined" and "consolidated" have similar meanings in plain English, they have very different meanings in the Internal Revenue Code because they apply to two different legal entities. Check with your tax professional to understand how these terms apply to your tax situation.

Combined Returns

Combined returns are more commonly known as "joint returns." They apply to married couples filing a tax return together as a couple. There are usually tax advantages to a couple filing jointly. In joint filings the income of both parties is combined and they are treated as a single unit. Both parties of the couple are assumed to have contributed equally to the income.

Consolidated Returns

Consolidated returns only apply to corporations, not individuals. Consolidated returns refer to how two legal entities, such as two corporations, are treated with respect to each other with regard to the Internal Revenue Code. In some cases, a corporation's tax return can be consolidated with another corporation that wholly owns it. However, the exact legal relationship between the two corporations dictates how and when their returns can be consolidated. Consolidation of tax returns simplifies the tax filing process for both corporations and in some cases enables the owning corporation to take advantage of tax breaks that would not otherwise be possible.

Combining Consolidated and Joint Returns

Corporations are separate legal entities and are distinct from individual people. Therefore, it's not possible for a tax return to be both a joint return and a consolidated return. Even in the case where an individual is the sole shareholder of a corporation, and all of the income is paid out to the single owner through dividends or income, the Internal Revenue Code sees them as two distinct legal entities. So it's not possible for the shareholder to combine the tax return of the corporation into a "married filing jointly" return.

References

• IRS: Internal Revenue Code