A business entity is an organization created by an individual or individuals to conduct business, engage in a trade, or partake in similar activities. A business’s entity type dictates both the structure and how that business is taxed. Here at Havig Tax & Consulting, we can help you decide which business entity is the best fit for you.
Did you know:
48% of US businesses are sole proprietorship/partnerships
A sole proprietorship (sole prop) is the simplest business entity with one person (or a married couple) as the sole owner and operator of the business. Partnerships share many similarities with sole props, but the key difference is that the business has two or more owners.
Sole proprietorships have: one tax return (Schedule C), are simple to set up, and one level of tax on the net income. However, they also have the potential for unlimited personal liability, very high self-employment tax, and few tax planning opportunities.
19% of US businesses are C Corporations
C Corporations are an independent legal entity that exists separate from the company’s owners. Shareholders (owners), a board of directors, and officers have control over the corporation. Because of this, there are many more regulations and tax laws that the company must follow.
Corporations are viewed as an individual taxpayer by the IRS (hence the saying “corporations are people”). Corporations file multiple tax returns, tax rates change frequently, and are known for double taxation.
33% of US businesses are S Corporations
S Corporations preserve the limited liability that comes with a C Corp, but is a pass-through entity for tax purposes. S Corps are similar to a sole proprietorship in that there is no corporate-level taxation, but the profits and losses pass through to the owners’ personal tax returns.
S Corporations are favored by small businesses because of the limited personal liability, and avoidance of self-employment tax. However, there are more rules and regulations than there are for sole props.
If you’d like to discuss which entity is right for you and your business, contact our office today.