New Businesses Have Options for Structures

Author: Keith Huggett

When starting a new company, you have several business structures from which to choose. Making the right choice can mean saving on taxes, protecting your personal finances and ensuring smart growth. Review the following descriptions and work with a qualified tax professional or business adviser to help you decide which type is right for you.

There are five primary types of business structures:

• Sole proprietorship: If you are the sole owner of a business you can set it up as a sole proprietorship. All income generated by the business is included in your personal income taxes, and you are personally liable for any debts incurred on behalf of the business.

• Partnership: A partnership is similar to a sole proprietorship with the exception that the business has multiple owners. Again, the income generated is claimed on personal income tax returns.

• Corporation: Unlike a sole proprietorship or partnership, a corporation is treated as a separate entity and is taxed as such. This means that profits generated by the business are taxed, and any income you generate from the business is also taxed. Corporations also have more stringent filing requirements.

• S corporation: Companies that want to avoid double taxation sometimes opt for an S Corporation, which passes all the profits and losses of the company through to the shareholders. Certain criteria must be met in order to qualify. For example, no more than 100 shareholders are allowed.

• Limited liability company (LLC): An LLC is also a pass-through entity, meaning the owners claim profits on their personal income tax returns. However, unlike a sole proprietorship or partnership, any financial losses are the responsibility of the company, not its owners. This provides a certain amount of financial protection for the member owners while still allowing a lot of flexibility. When filing taxes, an LLC has the option to file as an individual, a partnership or a corporation.
  

If you're not sure which of these business structures is right for your company, let the professionals at The Tax Office, Inc. help. We can evaluate your business and make recommendations to help you save money and grow wisely. Contact us today to learn more.