With the different entities available for starting your business, it’s important to look at how to minimize the amount of taxes that you will be paying on the income for the business. This post will give you basic information but it’s important to talk with a tax professional to decide which entity is best for you.
Sole Proprietors and General Partnerships: Money earned for a sole proprietorship are subject to self employment tax which is currently 15.3% on the first $90k in income. General Partnerships are taxed in much the same way as a sole proprietorship. The big difference here is that there are multiple people involved to divide income or losses between.
Limited Liability Company (LLC):Â LLCs are pass through entities which means that any gain or loss in income from your business gets passed on to your personal tax returns.
S-Corp:Â S corps are taxed in the same manner as LLCs.
C-Corp: C-Corps are a separately taxable entities. As the owner of a C-Corp you can be subject to double taxation when you take money out of the corporation as that money is also taxed inside the entity itself.
Nonprofit corp: In a nonprofit corp you can file for tax exempt status to avoid paying federal taxes. In addition to federal, there are several states who provide provisions to not pay others taxes such as income, property and state tax.
What entity is right for you from a tax standpoint? The only way you should make that determination is if you are currently a tax professional. Otherwise seek guidance here. Again your business needs to be built on a firm foundation of success. I have seen businesses fail because of a lack of attention to tax ramifications in their business.
What experience have you had with regards to tax in your business, good or bad?
PS It’s that time of the week for my podcast. This week’s show continues the discussion about the various positive by-products of being a business owner. Enjoy!