How you choose to classify your business is a major decision for your business as your choice will impact how you pay taxes and structure your business. While deciding which option is ideal for your needs may seem confusing, our team of small business accountants will help you choose the right classification for your Fuquay Varina small business.
An entity refers to how your business is structured, and while your business may meet the requirements of multiple classifications, not everyone that you are eligible for is right for you. How you classify your business is often one of the first major decisions you’ll make as an owner or shareholder. That’s why it’s important to speak with a professional who can outline the benefits and downsides of each entity in how it relates to your business.
Selecting a business classification means having a clear understanding of what each one entails. While we encourage you to reach out to us to get a one-on-one consultation, read the definitions of each entity type so you have a better idea of your options.
This is the simplest, most common form that allows you (or you and your spouse) to run your business without it being a legal entity. Because there is little to no separation between you as a person and you as a business, there are few legal controls and taxes, but you are personally responsible for any debts accrued.
Partnerships often have the same rules and regulations as sole proprietorships, only more than one person owns the business.
In an LLP, two people own the business, and while one assumes full personal responsibility, the other partner assumes limited liability. Before choosing this option, you’ll want to have clearly defined roles with your partner because the full liability partner is the only one who can legally make decisions and changes without consulting their partner.
An LLC can be owned by one or multiple people and is popular for startups. An LLC is a pass-through option, meaning your profits are included in your personal taxes, but otherwise, your personal assets are protected from liability if the business goes bankrupt or is sued.
A corporation consists of multiple people who come together to act as a single entity. The law considers a corporation as a single entity. While there are often tax and financial benefits along with additional rights and privileges that LLCs and sole proprietorships don’t have, there is often reduced personal control in the business along with other considerations.
An S Corporation, or S Corp, is a corporation that does not pay income taxes. Instead, the income is divided up between the shareholders who claim it as personal income on their individual taxes. A Sub-Chapter-C classifies nearly every corporation besides S Corps. Here, C-Corps are double taxed as both the income to the company and the shareholders’ incomes are taxed.
Start your business on the right foot by choosing the best classification for your company. If you’re not sure which option is best, our small business accountants can help you make the best choice to reduce your tax burden and maximize your profits. Call us today at 919-420-0092 or fill out our contact form to learn more about our accounting services.