One of the first steps you’ll take as you launch a new business is choosing your business classification. While it sounds like a simple task, this decision has a huge impact on your taxes, so it’s essential you select the right entity for your business.
We’ve outlined the types of business entities below, and our small business accountants can also advise you as to which option may be best for your personal income and business profits.
Establishing a business entity allows your business to operate as its own organization and is how its structure of operation is classified. The most common types of entities are:
The sole proprietorship allows a business owner to run their business without separating it as a legal entity. Income and profits are included in your personal taxes and you are personally responsible for any debts the business may accrue.
A corporation is formed by a group of people who create one single entity that is separate and distinct from the group. This legal entity is recognized as an individual person rather than recognizing the individual owners.
An LLC is one of the more popular startup options for small business entities. By choosing this entity, your personal assets are off limit if you get sued and you have the option of being taxed as an S-Corp, where you can pay through your individual taxes.
The general partnership operates in the same manner as a sole proprietorship, only with more people. All partners operate equally and all share unlimited liability, meaning their personal assets are liable in the event of a lawsuit, but taxes are paid through individual tax forms.
Two people come together to form a business, only one assumes full personal responsibility whereas the other partner only assumes limited liability. In this type of business entity, full liability partners are able to make decisions and implement changes in the business without consulting the other partner while the limited liability partner doesn’t have this kind of freedom.
A PLLC has the same tax and liability benefits as an LLC but this designation is only recognized for licensed professionals, such as architects, accountants, and law firms.
Nonprofit organizations refer to tax exempt organizations that are formed to provide a “public benefit.” Churches, community foundations, and charitable organizations all fall under this type of entity.
Make sure you start your business out on the right foot by having an experienced professional help you choose the right business entity for your startup. Contact our office today to discover how C.E. Thorn, CPA, PLLC has helped several Hillsborough area businesses reduce their costs and limit their tax payments. Reach out to us today at (919) 420-0092 or complete the online contact form to speak with an experienced CPA today!