Building Your Business: Tax Treatment
Although taxes are often considered the bad guy, in this case taxes can be used to the advantage of a business. Depending on the business structure, a business owner can minimize negative tax implications and leave more resources available for added growth and self-investment. Business structure influences taxes.
Figuring out the right business entity for your business and for legal reasons frustrates the most savvy business owners, especially because many options are available with certain outcomes. Therefore, a tax treatment lawyer guides the business owner for choosing the right entity and tax treatment.
Choosing the entity type
Forming the right type of entity for a small business creates the foundation for choosing the most ideal tax treatment. Meanwhile, if no business entity exists, the business income stays on the individual owner’s tax returns. Based on the business, this may or may not be ideal for the business and the owners.
Although many business entities exist, here are a few.
- Small corporations – Usually taxed under Subchapter C of the internal revenue code, almost all small businesses elect to be taxed under Subchapter S instead; this is sometimes called the s-election (see below for more on the s-election).
- Single-member limited liability companies – Single-member LLCs are disregarded entities, which means the business income is reported on the individual owner’s tax return.
- Multi-member limited liability companies – By default, multi-member LLCs are taxed as partnerships, with income tax applying at the individual owner level. The LLC files an informational return with the IRS, but pays no taxes itself.
The option of electing tax treatment as s-corporations is offered to small corporations, single-member, and multi-member LLCs. Moreover, when the business net profit exceeds $40,000-$50,000 per owner, the s-election should be considered. Although this election requires more paperwork and upfront costs, the benefits outweigh the work eventually.
Coordination with other professionals
Creating a successful tax treatment plan benefits from the input of a community of professionals. Not only does a business lawyer offer a network of knowledgeable individuals but a lawyer also works with your community and business to ensure that the right tax treatment strategy is chosen.
The tax treatment lawyers at Kraemer, Manes & Associates specialize in evaluating the structure of your business and guiding a business owner through the process of choosing a business entity along with the tax treatment. While the process is not difficult, the additional input of knowledgeable individuals will help your business have the best possible outcome. Call or email us because we know business.