Things to Know About Choosing a Business Structure & Taxes
Business Structure
When starting a new business, the owner must decide what type of entity it will be. The type of entity will have an impact on liability, taxes, the amount of paperwork, and ability to raise money. The most common forms of businesses are:
- Sole Proprietorships
- Partnerships
- Corporation
- S Corporations
- C Corporations
- Limited Liability Company (LLC)
Tax Implications
The type of business someone operates determines what taxes they need to pay and how to pay them. There are the five general types of business taxes.
- Income taxes – All businesses except partnerships must file an annual income tax return. They must pay income tax as they earn or receive income during the year.
- Estimated taxes – If the amount of income tax withheld from a taxpayer’s salary or pension is not enough, or if the taxpayer receives income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, they may have to make estimated tax payments.
- Self-employment taxes – This is a Social Security and Medicare tax. It applies primarily to individuals who work for themselves.
- Employment taxes – These are taxes an employer pays or sends to the IRS for its employees. These include unemployment tax, income tax withholding, Social Security, and Medicare taxes.
- Excise taxes – These taxes apply to businesses that:
- Manufacture or sell certain products
- Operate certain kinds of businesses
- Use various kinds of equipment, facilities, or products
- Receive payment for services
With the new Tax Reform, it may be time to consider evaluating if your business structure is right for you. Start a conversation with one of our Tax Advisors today.