Choosing the Right Business Entity

Choosing the Right Business Entity

When you start up your business you’ll want to figure out your tax-related business identity. There are a few choices depending on where you live. In the USA you can choose to

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be a sole proprietor, partnership, a limited liability corporation (LLC) or a corporation. Each has different rules, regulations and tax consequences. It will depend on your individual business and what works best for you.

Some types of businesses are required to be in a certain category, but a large share of businesses can run as sole proprietors or LLCs easily.

Sole Proprietor

This type of business set-up means that there is just one owner who is totally responsible for everything. It’s the easiest way to start a business, and how most people get started as long as they’re not in a category that requires another entity.

One problem with this type of business is that if something goes wrong and a customer or other person is harmed in some way and brings a lawsuit, they can win your personal funds and even take your home. Taxes are easy in the USA with the schedule C on personal income taxes.

Partnership

If you are running a business with another person, then you may want to form a partnership. You don’t have to in order to run a business with someone else, but it can offer another level of protection for both parties in the event of a disagreement or even a lawsuit. Income taxes are simple and somewhat like the schedule C reporting, with an additional information return filed. This type of business can be difficult at times, but it’s just as easy to set up as a sole proprietorship.

Limited Liability Corporation

Many people like to form LLCs because they have the opportunity to file taxes as a partnership, corporation, or even as a sole proprietorship. The LLC is mostly just to protect individual business owners from personal liability if something goes wrong and a lawsuit happens, or if the business goes under.

Corporation

There are many types of corporations such as an S Corp and an INC. These are the most expensive types of entities to form, and have many requirements such as having a board of directors and paying separte taxes for the business and the owners, and other issues. It is highly recommended that you work with a professional who specializes in these types of businesses so that you can keep compliant with the laws.

The business entity that you choose will make a difference in how you file income taxes and in how you run… Click To TweetIf you are unsure about which type would be more fitting for you, I recommend that you download The Home Business & Small Business Tax Toolkit that I created for unsure entrepreneurs just like you.

 

Ktasha N. Hardge is Founder and Owner of Hardge Connections, LLC...a boutique Tax & Accounting Services company based in NY serving clients across the U.S. Ktasha is a Strategic Tax Professional, Business Coach and Small Business Consultant over 15 years of tax and business expertise. To her clients, she is known as the "Tax-Slashing", "IRS-Slaying", Tax Super Hero. You can contact Ktasha for professional and expert income tax services, or for your IRS problems, or if you need help starting, growing or running your business better.