One question we are asked is “What entity type is best?” and the concrete answer is “it depends”.
The goals of the company and owners must be analyzed and studied before a determination is made. Is the goal primarily to reduce Self Employment taxes with an S Corporation? Is it to keep as much profit as possible in the company to attain certain goals (Buying a Building, Buying new equipment, and expansion, or Investing). Standard Corporation would allow for the lowest tax on any gains to build your cash up. Is the business purpose to simply start a business with others and build it? Then a Foreign or Domestic LLC could be best or a simple Partnership. We work with your staff to find the right choice.
Similarities of Business Entities
Each type has traits in common with the others. They all use the same MACRS Depreciation Schedules, Equity may be allocated the same way, and other businesses can share the same business model. The similarities are endless.
The Differences are usually based in compensation methods, how equity is distributed and whether the profits are taxed at the company level or pass-thru to the owners and are taxed at the Taxpayer Level. Some differ by legal requirements and constraints placed on the owners. These differences can be compounded by the improper selection of an entity type.
With all of this don’t you owe yourself to seek a professional to help with your planning?
If your business is already up and running we can complete reviews and assist you in an entity change if necessary, or fine tune your accounting system to better accommodate your needs.
Free initial meeting to make sure we are the right fit for your needs.