Choosing The Right Small Business Structure For Tax Reasons
When it comes time to select a small business structure for your next endeavor into the marketing world, be sure to consider the impact your options will have on your taxes throughout each and every year. There are several options to choose from, and ensuring that your final selections is what is best for your company is essential. Therefore, understanding what each option means for your taxes and how they will be paid as well as how your personal finances can be impacted is crucial. Here is a brief overview of the most popular options available to small business owners:
A sole proprietorship seems like the easy way out to most new business owners. Indeed, this small business structure is fairly easy to set up, and because there is only one owner, filing taxes is easy. Instead of filing for the business, the owner of this type of business simply pays taxes on their own income. However, this ease comes with a great deal of liability for the owner as well, including legal issues.
A corporation offers business owners a few options. There’s C corporations and S corporations. C corporations can general claim more business expenses on taxes, but are subject to double taxation .S corporations can avoid this double taxation, but must have less than 100 shareholders, which can be a challenge.
Limited liability companies have several tax benefits as well. Not only are they exempt from double taxation, but tax payments are made quarterly, which can be great for many small businesses. However, LLC owners are required to pay for their own self-employment taxes, which can be a large drawback for some.
Partnerships come with a wide variety of options. However, most of these arrangements will have a similar tax situation. Normally, the taxes are paid by the partners themselves, which allows them to avoid the various corporate taxes associated with owning a business. This small business structure unfortunately also places a great deal of liability on the shoulders of both partners as well in the event that debts cannot be paid.
Creating a nonprofit organization can be extremely difficult for many new businesses, as it restricts the amount of profit needed for growth. However, for those who manage to meet the strict requirements, tax exemption awaits.
Each of these options has its own benefits and drawbacks, so considering what your company could benefit from this most is an essential part of making this important decision. Speaking to a professional can help to clear up any concepts which remain cloudy.