The Tax Side Of Starting A Business
Thinking of starting a business? Legal structures should be put in place before you assist your first customer. The Law Office of John D. Harrington, PLLC, is knowledgeable regarding business formation, including sole proprietorships, partnerships, LLCs, S Corps and C Corps. Understanding the tax consequences of each legal structure is crucial to avoiding unpaid tax debt. Our namesake attorney can provide you with trustworthy guidance on business formation, supported by his 20 years as an attorney and his 11 years of focus on resolving tax controversies for clients.
Business Structures And How They Are Taxed
Here is a brief overview of how common business entities are created and how they are operated and taxed:
- Sole proprietorships: In these businesses, the owner is personally liable for lawsuits filed against their business, they do not have to file a form with the state, and taxes are reported on the individual’s personal tax return.
- Partnerships: Like a sole proprietorship, partnerships also usually require no state filings to create them, and the partners are personally liable for lawsuit damages. The IRS requires the filing of a Form 1065; the profit or loss reported on the form flows through to the partners, who report their share of the profit or loss on their personal tax returns.
- Limited Liability Companies (LLCs): Designed to be a legal structure separate from the owner(s), LLCs can help company owners separate personal and business debts. They use operating agreements to govern how they function.
- S Corporations: This business structure fully separates business and personal debts. S corporations file Form 1120S. Any taxes owned on profits get taxed at the owners’ personal tax rate. There is a limit on how many shareholders can be part of an S Corporation, and shareholders must be citizens or residents of the United States.
- C Corporations: These corporations have no limit on the number of shareholders. Personal and business debts are separated for the owners. The business entity is taxed on corporate profits and the dividends of shareholders. C corporations are required to hold meetings annually and record minutes of the proceedings.
Determining The Right Corporate Formation For You
If you are interested in starting a business, already working as an independent contractor, need a plan to pay required business taxes (like quarterly taxes) or just unsure of where to start as a self-employed taxpayer, John Harrington can help. He can assist in making sure your business is compliant with state and federal tax laws. To set up a free introductory appointment, call 810-355-6009 or email the firm.