INDUSTRY INSIGHT
YOUR TAXES
SPONSORED CONTENT
CHOOSING YOUR
BUSINESS ENTITY
W
hen you start a business you have several choices for which
type of entity to set up and each one has advantages and
disadvantages. There is no one choice that suits everyone.
Businesses have to set up the business structure that best suits their
needs. Listed below are some of the different business entity choices.
Sole Proprietorship
The Sole Proprietorship is the simplest entity to set up. It is owned
by an individual and the profit is reported on the taxpayer’s
personal income tax return on a schedule C. It does not provide much
personal asset protection so if the business fails, debtors could come
after you personally to collect. You are required to pay Social Security
taxes on the profits. Taxpayers make federal, state and local estimated
tax payments if they have profits.
Partnership
A general partnership is when more than one person agrees to go
into business together. It is simple to set up and requires you to file a
partnership tax return each year. The partnership itself does not pay
taxes but profits or losses are taxed to the partners on a schedule K-1,
which is part of their personal tax returns. Depending on the type of
business your partnership is in, the partners may be subject to selfemployment taxes also. A general partnership does not provide much
personal asset protection so, again, if the business fails, debtors can
come after the partners personally to collect the debts. To protect
your personal assets you could consider forming a limited partnership
if possible.
Corporation
Corporations are a very common entity choice. They require you
to incorporate in a state and there are fees to incorporate, but they
can provide excellent personal asset protection. The corporation has
to file a corporate tax return each year and pays taxes on its profits.
The owners generally take a salary if they provide services to the
corporation. Dividends may also be paid to the shareholders. The
corporation can choose to elect “S” corporation status. By making
the S corporation election the shareholders are now taxed instead of
the corporation. A schedule K-1 is provided to the shareholders and
is reported on their personal income tax returns. The S corporation
shareholder earnings are not subject to self-employment taxes but
the shareholders must take a reasonable salary for any services they
have rendered.
Limited Liability Company (LLC)
You have most likely seen LLC after business names, as it is usually
the type most often chosen for a new entity. It gives the owners
many choices and provides some personal asset protection. An
LLC can choose the default option to file as a partnership (or a sole
proprietorship if a single-member LLC) or make an election to be
taxed as a corporation or an S corporation.
No matter which business entity you choose, there are several areas
of tax compliance and tax planning that we can help you with. We will
advise you on the different types of taxes you will have to pay and the
corresponding due dates. We will be happy to discuss the taxation of
the profits and losses of the business and how they could affect your
individual tax situation.
If you are interested in obtaining more detailed information,
please contact Paul Hartley at 412.571.2900 ext. 112 or email Paul at
[email protected].
This Industry Insight was written by Paul R. Hartley.
Paul R. Hartley is a partner in Reddinger, Will, Gallagher &
Dickert, LLC. He has over 15 years of experience assisting
clients with individual and corporate taxes. Please give him
a call if you have any questions, 412.571.2900 ext. 112.
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