Selecting a Business Structure and its Impact on Taxes

 

One of your more important business choices is the kind of legal structure which you must choose to define your company. This decision will not only affect the taxes you pay, it will also have far reaching implications on the quantity of paperwork your commercial entity must do in  Chandler, Gilbert, Mesa, Phoenix, Tempe, Scottsdale and Maricopa County. Your money raising ability and personal liabilities are also affected.

 

You have to define your commercial entity within these four labels:

 

  • Sole proprietorship
  • Partnership
  • Corporation
  • Limited Liability Company or LLC

 

Selection of a business entity

 

Before you finalize your decision, you must evaluate an number of criteria.

 

  • Legal liability: This means the extent up to which the owner can be shielded from legal liability.

 

  • Implications on tax: Your aim is to minimize your tax burden. This aspect is dependent on the goals and individual situation of any business owner.

 

  • Cost of ongoing administration and also formation: Advantages due to tax may not compensate other expenses of doing business as a corporation

 

  • Flexibility: The aim is to maximize the ownership structure flexibility after considering the needs of both owners and the business

 

  • Future requirements: You must take into account the fate of the business after your death, or in the matter of selling your stake in case of business partnership.

 

Sole proprietorship

 

It is the simplest business structure and involves only one person who is the owner and also operates the enterprise. In case you like to work alone, choose a proprietorship. Taxes imposed on this kind of business can be included in the tax return filed on personal income. Raising money to expand your business can be difficult.

 

Partnership

 

This is a business operated and owned by multiple individuals. Partnerships are of two kinds: limited partnerships and general partnerships. In general partnerships, the company is managed by partners and also assume the responsibility for the business debts along with other obligations. In case of limited partnerships, both limited and general partners are present. The business is owned and operated by the general partners and also assume its liabilities. Limited partners are basically investors and does not exert any control. Partnership businesses enjoy a number of tax advantages. There is no tax on the business income, but percolates through to individual partners.

 

Corporation

 

It is a complex business structure and is considered completely independent legal entity. Corporations must also comply with increased tax requirements and regulations. The benefit of incorporating is the protection from liability the owner gets when his or her company transforms into a corporation. The downside is much higher tax rates.

 

Limited liability companies (LLCs)

 

The LLC is made more for tax purposes compared to any other kind of business entity. It combines the best of both corporations and partnerships. You enjoy a limited liability and taxes are simplified. There are also the benefits of flexible management and flexible distribution.

 

If you are considering beginning a new business and would like to discuss what might be the most tax efficient business structure for you. Feel free to contact that tax specialists at Wealthnest Tax Services 480-699-5275 or visit us at 5720 W. Chandler Blvd. Ste. 4 Chandler, AZ 85226.