The Best Tax Entity

Topic: It is important that business owners select the best tax entity for their business.  Discuss one or
two reasons why partnerships or limited liability companies are often a better choice for a new business
than a C corporation or a S corporation.

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Respond to two classmates posts. Cites all three works and titles

 

1. Why are partnerships or LLCs a better choice for new businesses compared to C & S corporations?

When starting a new business, business owners face choosing a legal structure. The ultimate choice comes down to taxation, complexity and cost, and the liability protection of the owner’s assets.

Partnerships are easy to set up and administrate. They are also flexible and require no payroll work if no employees exist besides partners. The downside is that owner’s assets are usually not protected unless formed as an LLC.

With limited liability companies, owners choose how to identify themselves for tax purposes. Limited liability companies usually file as a partnership for federal tax purposes. The benefits that come with an LLC are the owner’s assets are safe from lawsuits, simple to administrate, and have lots of flexibility that allow future changes of the entity.

Partnerships and limited liability companies are not subject to double taxation while a C corporation is. The cost for partnerships and LLCs is moderate, while on the other hand, C and S corporations are higher.

 

2. What are some of the advantages of forming a company under a LLC rather than filing as a S-corp or a C-corp?

LLC’s, C-Corps, and S-Corps are among the various ways that businesses can file their businesses as. LLC’s are generally very simple entities and makes filing their specific taxes quite an easy process. With a S-Corp you would have to establish that you are on the payroll of that company and pay yourself a “livable wage” let’s say $40,000 and then for any other additional profit you would take that out as a dividend. For a LLC you would just take the full amount of income and use it as taxable income. You would save taxes theoretically by filing as a S-Corp but there are numerous things you have to consider such as: setting up a payroll system, filing K1’s, etc. For simplicity sakes, many small business owners just file as a LLC so they don’t have to go through this process. C-Corps however are not very advantageous for small business. They typically go through double taxation which is not helpful to the small business owner although they do allow more than 100 shareholders which would not really apply to a small business so they would not be able to take advantage of that caveat. What are some other advantages than what I have stated above? What are your thoughts on this topic?

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