How To Deal With New Business Structure And Tax Considerations

Are you planning to start your own business? If so

, the first thing that you will have to decide is the structure of your business. Will it be a partnership, a corporation or a limited liability company (LLC)? Or maybe you want to be the sole owner or the proprietor. It is essential for you to know that there are both advantages and disadvantages of each of these business structures. So it is up to you to decide what is best for you. But in the majority of cases, small businesses when they start off are sole proprietorship firms. Such companies are the easiest to set up and the most inexpensive as well. Then as the business grows, the money can be rolled back to structure it better.

Most Popular Business Structures

Sole ownership or proprietorship: This is the most popular and simplest structure for businesses. It can be set up easily and is extremely popular among those who are starting off. However, if the business goes down, the personal assets of the owner are also at risk.

Partnership: Two or more people come together to run the business jointly. They also agree to share capital, expenses and the profits or losses of the organization. Here, there is no liability protection for the owners.

Corporation: Here, the business is treated as a separate entity from the owner. This means that the shareholders or partners are not liable to pay from their own pockets if the business suffers a loss. The personal assets of the owners are thus protected. Ownership can also be transferred easily by selling the stock of the company.

Limited Liability Company: This is probably the best business structure. It is flexible and offers the characteristics of both a partnership and a corporation. However, ownership cannot be transferred. This structure is easy to set up as well.

Tax Considerations for Businesses

Tax is another important aspect for any business other than the structure. The two most important taxes here are sales tax and income tax.

Sales tax: In simple terms, this is a percentage of each sale that your business makes. The tax is charged to your customers. When a customer buys anything from you, it is your obligation to collect the sales tax from the sale proceeds. Having collected the amount, it is also your responsibility to forward the money to the respective agency of your state. But before you can collect the sales tax, you must have an account with the state agency. The system is regulated differently by each state, so you must know the exact system in your state.

Income tax: This is the tax that any individual or business has to pay to the federal government, and it depends on the income or the revenue earned. If you are in business, you can enjoy certain deductions. These include your vehicle mileage, mortgage costs or home rent, supplies, equipment, business leases and others like this.

by: Jane M Dawson

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