New Business Start-ups
Starting a business? One of the most important decisions you’ll make is choosing what type of entity to operate as. There are 5 different entities a buisnesss can operate as. Trying to change your business type once you have started can be a nightmare. It is best to make an informed decision the first time to cut down on paperwork, hassle, and extra fees. Understanding both the tax consequences and the operating procedures under each form of organization is vital to your success as a business owner.
Types of Business Entities
Sole Proprietor-- The sole proprietor and the sole proprietorship are one and the same taxpayer; there is no separate legal entity. These file tax form Sch C with their personal 1040.
Partnership-- Two or more individuals who make a voluntary contract to carry on a trade or business own a partnership. A partnership is a separate legal entity from its owners. These file a tax form 1065.
Corporations-- A corporation is a separate legal entity apart from its owner. The corporation is responsible for all of its own transactions and can be sued separately from its shareholders. These file a tax form 1120.
Limited Liability Company (LLC)-- The LLC combines most of the favorable aspects of the partnership and corporation. An LLC is a business entity, separate from its owners, that provides the LLC member with a limited amount of liability, which is usually only common to corporations. These file a tax form 1065.
Associations-- An association is an unincorporated business that is taxed as a corporation for federal tax purposes, even though it may not qualify as a corporation under state law. These file various forms of 1120.
Limited Partnership-- This entity follows most of the partnership rules, but the limited partner is not (and cannot be) active in the business.
S Corporation-- This entity follows most of the rules of a corporation, but income and losses are passed through to the shareholder, thus avoiding double taxation. These file a tax form 1120-S