If you are preparing to start a new business, one of the first things that you will need to do is choose a business entity. The type of business entity that you decide to pursue will certainly have tax implications for you in the long run. This is why it is important to conduct research upfront so that you know you are making the right decision for your business goals.
The following are some of the most common types of business structures, and an overview of the tax implications that they have for business owners.
S Corporations are common for doctors or consultants. It is a pass-through entity, which means that corporate income taxes are not owed. The only tax that needs to be paid is the income that owners receive.
C Corporations are the best business entity for companies that plan to go public or are planning to go public in the future. While this business entity offers many benefits, the biggest drawback is the possibility of double taxation, since both corporation profits and dividend are taxed.
If you run your own business, it’s not necessary to set up a business entity. However, you will be subject to tax implications. You will need to pay self-employment taxes as well as income taxes. This is because you are in legal terms both the employee and the employer.
If you want to make sure that your new company is tax-efficient, you should think about the goals for growth that your company will have, and choose a business entity that will help you to do this.