As a business owner, you have hundreds, if not thousands, of decisions to make. But perhaps your most important is deciding whether to classify your company as a C Corporation, S Corporation, Limited Liability Partnership, Limited Liability Company, Single Member LLC or Sole Proprietor. Failing to choose the right classification can put you in significant danger of overpaying in taxes. And, since you will likely live with the decision for a long time, you want to get it right.  We think this decision is so important, we dedicated an entire episode of our podcast to it!

The Basics

Based on your organization, restriction and liability thresholds, your tax professional will likely have a solid recommendation.  Most small businesses can be established as a sole proprietorship. Not actually a legal entity, because there is no legal distinction between the sole proprietorship and its individual owner, you and the proprietorship are one and the same for state-law purposes. Ditto for federal income tax purposes. The big attraction of sole proprietorship status is administrative simplicity. Because a sole proprietorship is owned by a single individual and not considered a separate entity, there are no federal income tax complexities.   But as soon as a business begins to generate significant income and wealth, the use of a liability-limiting entity (corporation, LLC, LLP, or limited partnership) is highly advisable.

Determining reasonable compensation for an S Corp is essential to staying compliant with IRS regulations and avoiding penalties. Our small business tax services can help you navigate payroll structures and optimize tax savings.