Recent Posts:

---

How Choice of Business Structure Affects Tax Liability

---

Why Tax Planning is Essential

---

How to Achieve Financial Goals with a Budget

---

What Are the Advantage of Professional Tax Preparation?

---

---

View AllSubscribe

How Choice of Business Structure Affects Tax Liability

Owning or running a business is seldomly easy. Many of the decisions that are made on a daily basis will affect the entire business’ structure or fluidity; the choices are everywhere.

From choosing the right business strategy to incorporating a new strategy and everything in between, your business relies on a series of trains that need to leave their stations on time in order to operate at peak performance. Arguably one of the most important trains is choosing the right business structure.

However, before you can register your company with the mandatory state and federal agencies, you’ll need to first select a clear business structure. Be aware, choosing the right one the first time will reward your business; but choosing the wrong one might reveal some ramifications.

Here’s how you can make the right decision for your business.

Common Business Structures

Organizing your business with a solid plan is the role of a business structure. It can also create transparency down the chain of command.

Here are a few of the most common IRS-recognized business structures:

• Sole Proprietorships – A company which has only one owner that takes home all of the business’s profits as personal income. Keep in mind, the company and the owner are one entity. This means the owner is personally liable for any business debts.
• Partnerships – Similarly structured to sole proprietorships with except for an unlimited number of owners.
• C-Corporations – Unlimited number of shareholders with each shareholder owning a portion of the company. In this case, profits are distributed as dividends amongst all owner-type shareholders. It’s important to note that C-corporations, as well as their owners, are separate legal entities; meaning they are not typically personally liable for any business debts.
• S-Corporations – Again, like c-corporations in regard to structure, except the number of shareholders has a cap of 100.

The Takeaway

We’ve learned that there are many ways to structure a business, and how each structure affects how your business can operate.

As a side effect, selecting the appropriate business structure for your company has revealed how it can also affect a business and what its owner(s) will pay in taxes.

Tax ramifications can be avoided from the beginning when selecting the right business structure for your company. Don’t find yourself in a situation that could have been avoided.