11 Sep How to find the correct business structure concerning taxes
A seasoned accountant can help form the correct business structure
Forming a business can be a daunting task.
From the initial concept to the early stages of getting a business rolling along, there can be countless hours of decision-making and strategic planning.
One of the earliest stages has a concentration on the type of business you will form. From a sole proprietorship to a corporation, there are many different aspects to consider.
When considering a business structure, taxes are a common item in which to be mindful and can be a deciding factor.
A sole proprietorship is one of the most simple business structures where the business owner files and reports profit and loss on Schedule C with Form 1040. If you’re in a profession where clarity is key, then this structure may be the right fit.
But it is important to find a plan to set money aside for self-employment taxes. This can be the downfall of many self-employed business owners and understanding the correct amount for self-employment taxes should be discussed on the front end of a new venture.
Limited Liability Company
One of the most common business structures is the Limited Liability Company (LLC). In this model, there is a distinct line between the business owner and the business which makes it a good fit for many people for several reasons. It can protect the member personally as debts and other business transactions are in direct affiliation with the company that is formed.
There are different variations of the LLC structure and it is good practice to consult with a tax professional on which option may work best. In most cases, an LLC is a pass-through entity in which the LLC members pay taxes on profits along with self-employment taxes.
The corporation is another business structure and is different than the LLC or sole proprietorship when it revolves around taxes. The corporation structure does create a fine line between personal and business practices, but it does have to pay taxes. Within this formation, business profits and losses are not passed along to the business owners because the corporation pays taxes on its profits.
When considering forming a business, it is good measure to get on the same page with a local accountant. Working side-by-side with someone who understands your business, goals, and structure will give you peace of mind in knowing your business is organized correctly.