What’s the best business structure? The answer, of course, is that it depends. In most cases, though, you’ll want to have either an C Corporation tax structure or an S Corporation tax structure for your business.
You can have those corporate tax structures either by forming the corporation directly or by forming an LLC (limited liability company) and then electing to be taxed as either a C Corporation or an S Corporation
The corporation is generally used for businesses because there is no self-employment tax (currently 15.3%) on taxable income in the corporation. If you have a Schedule C or a partnership, you will most likely have to pay the self-employment tax. (There can be some exceptions here. Talk to your personal tax strategist or drop a note on this blog.)
There are some big differences between an S Corporation and a C Corporation. Here are some things to consider:
- Do you (and your prospective partners) qualify to have an S Corporation? There is a limit to the number of number of owners and it’s limited to US citizens and/or US residents. Foreign nationals or other business structures can not own an S Corporation.
- How important are benefit plans? A C Corporation can offer much better tax deductible benefits to a shareholder/employee. There are limitations on what an owner in an S Corporation can take as a deduction.
- Are you otherwise at the highest tax bracket on your personal tax return? If your business has taxable income and you are at the highest tax bracket anyway, you may be better off with a C corporation. The C Corporation pays tax at its own rate with its own tax return. The income tax doesn’t flow back to you.
- Do you have one of the C Corp danger issues? A few are Personal Service, Personal Holding, Accumulated Earnings issues – these can really create an issue for C Corps. Beware.
- Are you okay with keeping great accounting records? A C Corp requires more thought when it comes to putting money in and taking money out.
Those are just five of the things we discuss when it comes to finding the best business structure. Don’t jump in without fully considering what the best solution is for you.
Megan Hughes and I (combined almost 50 years of legal and tax experience) combined all our best advice in “How to Choose the Right Business Structure.” We’ve advised thousands of clients on the best structures and charged thousands of dollars each for that advice. Now you can get that same advice, for just a fraction of the cost. Don’t wait! Tax laws are changing and you need to be prepared.
Business Structures aren’t one-size-fits all, no matter who says they are. The right one will save you money. The wrong one will cost you money. It’s all a question of knowing the right structure for your business. Download today!