If you’re starting to turn your dream of running your own business into reality, you have likely heard about how important it is to choose the right legal structure for your new company. There are four primary legal company structures that you can choose from:
- Sole proprietorship
- Limited liability company (LLC)
Each of these structures features potential advantages and drawbacks. One of the ways in which your decision to choose a specific option over the others will be consequential involves taxation. If you choose some of these structures, your company’s profits and losses will be taxed on your personal, annual income tax return. If you choose others, your company will be taxed as a distinct entity.
Which options allow for the results you want?
Sole proprietorships and partnerships are taxed on the individual returns of their owners. Corporations are always taxed as distinct legal entities. Limited liability companies serve as middle-ground options. If you choose to structure your company as an LLC, you’ll be able to decide whether you’d like it taxed on your individual return or distinctly like a corporation.
By carefully considering how you want your business to be taxed, you can make truly informed decisions about the legal structure of your new company. If you aren’t sure of how your desire to have your company taxed a certain way will compete with other operational goals that a specific structure will influence, don’t hesitate to seek professional legal guidance and assistance. It is far better to be safe now than sorry later.