Many times people start a business, but don’t form a corporation or anything else. But eventually, folks realize that the world is very litigious and they form a legal company. But what entity should you choose? And what if you need to change it for better tax advantages? Well, you’re not alone if you haven’t figured this out.
The IRS defines a “tax entity” on their terms. Any sole proprietor or single-member LLC is viewed the same from a tax standpoint and are reported on your personal tax return on Schedule C. If you shake hands with a partner and file a partnership return, that’s done on a tax return separate from yours. And if you form a Corporation or even choose to be an S Corporation, you’ll use different forms for those as well. But which one is the best? …. It depends….
A well thought-out business plan can minimize taxes now and in the future. Keep the entity simple now and change it later to accommodate growth, new partners, or different tax deductions. Choosing the LLC can make this easier. Deciding whether you want partners is very important in choosing whether a general partnership or LLC is best, but also be aware that these entities may be subject additional “self employment tax” of over 15% depending on the partners’ role in the business. Corporations are most dangerous in the tax realm due to double-taxation of profits, so consider an S Corporation before you dive into one.
Regardless of the entity, you need to know the cost and benefits of each. Planning and flexibility are key in minimizing both liability and taxes, so call us so we can help you figure out how!
Stan is an active Certified Public Accountant (N.C. Certificate #32076) in North Carolina. With over seventeen years of experience exclusively serving local, privately-owned businesses, he is passionate about helping business owners optimize their potential, be proactive, and solve crises. Call Stan P. Moore CPA at 919 ♦ 233 ♦ 0076 for a consult today. For more information or contact us here!