Choosing the right entity structure is important to minimizing your tax burden. Here's a quick list of things to consider concerning each kind of entity:
Sole Proprietor - This can be the simplest type of operation, as you're unincorporated and solely have one owner. Your business income and expenses are reported on Schedule C of your personal tax return and every one your net income is subject to a 15.three% self-employment tax, as well as adds to your taxable income, subject to your personal income tax rates.
Partnership - This can be a a lot of advanced type of unincorporated entity with 2 or a lot of owners. During a general partnership, partners are personally liable for any partnership debt and every one internet income is taxable to partners whether or not distributed or not and subject to the identical tax treatment as Sole Proprietors. A limited liability partnership adds liability protection for the partners.
C-Corp - This entity consists of a number of shareholders and is a company entity registered with the state. The corporation could be a separate legal entity from its owners and is taxed on any internet income at the corporate level. Any dividends are then tax again to the homeowners on their personal tax return at their personal income tax rates.
S-Corp - This is often the same kind of corporation as a C-Corp, however with special tax treatment. An S-Corp election with the IRS allows the income of the company, once paying a reasonable wage to the owner for work performed, is more matured to the shareholders not subject to company tax. The homeowners are taxed on their share of income on their personal tax return at their personal income tax rates.
LLC - This can be a hybrid type of organization that has the identical liability protections that a corporation offers, however elect to be taxed as a Sole Proprietor (with solely one member), a partnership or a corporate. It can additionally elect S-standing for the tax treatment of an S-corp.
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