Business Structure Affects Taxes

Choosing how to structure a new business for tax purposes is undoubtedly one of the most frustrating aspects of being a small business owner. This article uses a number of graphical depictions to make the choice a bit easier to digest at the most basic level. It also gives some helpful statistics such as: “There are many more sole proprietorships than any other form of business (22.6 million registered, $265 billion in net income) . . . but corporations account for the vast majority of income (5.8 million registered, $984 billion in net income).” This indicates that although the sole proprietorship may be the more easy election when starting out, some sort of incorporation lends itself to sustainability and profitable growth. This is a big consideration that has far-reaching consequences for the life of a business.

The biggest categories of tax considerations for the owner of any potential business include whether or not to be personally liable should the business dissolve, how detailed company records must be, the nature of the business/industry, how involved the owner wants to be in the filing of tax returns each year, how profits should be distributed, how long the business will exist for, and the ultimate goal of starting the business. Closely examining this article, and also doing some deeper research or inquiry with an accountant or tax professional, is good place to start before proceeding with any sort of formal set-up.

More about the differences in business structure

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