Entity types and business tax filing implications - choosing the right one.
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Choosing the right business entity and the business tax filing implications.

business tax fililng

Choosing the right business entity and the business tax filing implications.

Choosing the right business entity and the business tax filing implications.

The business structure you choose will have legal and business tax filing implications. To get the most out of your small business, choose the right structure.  Therefore, selecting the right type of company or corporation for your new business helps maximize your chances of financial and operational success.

  • A sole proprietorship is the most basic type of business to establish. You alone own the company and are responsible for its assets and liabilities. It’s easy to form and offers complete managerial control to the owner. However, all of the financial and personal liability is completely carried by the owner and can be transferred from the business directly to personal holdings such as a home, bank accounts, and other assets in the event of a law suit.
  • An LLC is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.  The advantages of this business format are that profits and losses can be passed through to owners without taxation of the business itself while owners are shielded from personal liability.
    • Single Member LLC or Partnership
  • A corporation is more complex and generally suggested for larger, established companies with multiple employees. Using the corporate structure is more complex and expensive than most other business structures. A corporation is an independent legal entity, separate from its owners, and as such, it requires complying with more regulations and separate business tax filing requirements.
    • C-Corp
    • S-Corp

Alba CPA Recommended:

Limited Liability Companies (LLCs)

  • Independent legal structures separate from their owners.
  • Help separate your personal assets from your business debts.
  • Taxed similarly to a sole proprietorship (if one owner) or a partnership (if multiple owners).
  • No limit to the number of owners.
  • Not required to hold annual meetings or record minutes.
  • Governed by operating agreements.
  • Easy to start and operate in NJ

 

S Corporations

The S corporation is more attractive to small-business owners than a standard (or C) corporation. That’s because an S corporation has some appealing tax benefits and still provides business owners with the liability protection of a corporation. Furthermore, income and losses are passed through to shareholders and included on their individual tax returns when selecting this type of structure.

  • Independent legal and tax structures separate from their owners.
  • Help separate your personal assets from your business debts.
  • Owners report their share of profit and loss in the company on their personal tax returns.
  • Limits on number of shareholders, who must be U.S. citizens or residents.
  • Must hold annual meetings and record meeting minutes.
  • Although more complex and costly than an LLC, there are some money saving strategies available.

 

Factors to Consider

Cost of formation and ongoing administration, complexity, business tax filing requirements, personal liability, control, licenses and permits.

Another important question to ask yourself is, “What do I want to happen to the business when I’m no longer around to run it?” While a sole proprietorship or partnership may dissolve upon the death of its owner or owners, a corporation can be readily distributed to family members.

 

Business Tax Filing

  • Sole Proprietor = Schedule C
  • Single Member LLC = Schedule C
  • Multi Member LLC/Partnership = Form 1065
  • S Corporation – Form 1120S
  • C Corporation – Form 1120

 

Average Business Tax Filing Fees at Alba Translations CPA

  • Schedule C: $125 – $300
  • Form 1065: $350 – $550
  • Form 1120S: $465 – $680
  • Form 1120: $499 – $799

 

Ready to form a business? Need more information?

3 Comments
  • Mustard Seed Money
    Posted at 21:38h, 07 November Reply

    I think one of the things that I haven’t fully grasped is why a person would choose a single member LLCs over an S-Corp. I feel like I’ve read up on it a lot but haven’t quite been satisfied with the answers that I’ve received. Maybe I’m missing something but I haven’t seen a huge difference between the two unless you are able to take some of the income as dividend income. I don’t pretend to be a tax accountant though 🙂

    • Andi Oparaku, CPA
      Posted at 15:00h, 30 November Reply

      Most of the time, the S-Corp is better entity for small business owners, it offers tax savings advantages. Although it makes running your business more complicated with tax filings and insurance requirements. Owners will choose to start operating as an LLC initially, then once the business is established and generating a good net income, will elect to be taxed as an S-Corp.

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