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When starting a business, one of the first decisions you'll need to make is selecting the right legal structure for your company. The structure you choose can have a significant impact on your taxes, liability, and overall management of the business. It’s essential to understand the differences between the various types of entities—such as LLCs, S-Corps, Non-Profits, and Partnerships—to determine which one aligns with your business goals and objectives. Each structure has its own advantages, tax benefits, and requirements, which are crucial to understand when planning for the future of your business. This guide provides an overview of these common business structures, including their target audience, benefits, key forms and schedules required for tax reporting, and the available credits and tax benefits.
Limited Liability Company (LLC) Audience: Small to medium-sized businesses Entrepreneurs and startups looking for liability protection and flexibility Strategies: Flexible ownership and management structure Owners (members) can choose to be taxed as a sole proprietorship, partnership, or corporation Can be member-managed or manager-managed Benefits: Limited Liability Protection: Owners' personal assets are protected from business debts and lawsuits. Tax Flexibility: Pass-through taxation (profits and losses go directly to owners' personal tax returns), or can opt to be taxed as a corporation. Less Administrative Complexity: Fewer formalities compared to corporations (e.g., no board meetings, no corporate minutes required). Ownership Flexibility: Can have any number of members, and members can be individuals, other LLCs, or corporations. Forms/Schedules: Form 1065: Used for LLCs taxed as partnerships (reports income, deductions, gains, and losses). Schedule C: For LLCs taxed as sole proprietorships (reports business income). Form 8832: Election to be taxed as a corporation (if applicable). Schedule K-1 (Form 1065): For reporting each member's share of LLC income, deductions, and credits. Credits/Tax Benefits: Qualified Business Income Deduction (QBI): LLCs may qualify for a 20% deduction on net business income under certain conditions. Business Expense Deductions: LLCs can deduct ordinary and necessary business expenses, reducing taxable income.
S-Corporation (S-Corp) Audience: Small businesses with up to 100 shareholders Businesses wanting to avoid double taxation while benefiting from limited liability Strategies: Elect S-Corp status through IRS filing (Form 2553) Shareholders must be U.S. citizens or residents Profits and losses pass through to individual shareholders, avoiding corporate income tax Benefits: Limited Liability: Shareholders’ personal assets are protected from business liabilities. Pass-Through Taxation: Avoids double taxation (no federal taxes at the corporate level). Self-Employment Tax Savings: Only salaries are subject to self-employment taxes, not dividends. Attractive to Investors: Can raise capital through the sale of stock, although limited to 100 shareholders. Forms/Schedules: Form 1120S: Used by S-Corporations to file an income tax return (reports income, deductions, and profits). Schedule K-1 (Form 1120S): Reports each shareholder's share of the S-Corp's income, deductions, and credits. Form 2553: To elect S-Corporation status. Form 941: Quarterly payroll tax form (used to report wages, tips, and taxes withheld). Form 1120S Schedule D: Used to report capital gains and losses for the S-Corp. Credits/Tax Benefits: Qualified Business Income Deduction (QBI): S-Corps may qualify for up to a 20% deduction on qualified business income. Avoidance of Double Taxation: Earnings are only taxed at the shareholder level, not at the corporate level.
Non-Profit Organization (NPO) Audience: Charitable organizations, foundations, social welfare organizations Entities focused on mission-driven work rather than profit generation Strategies: Must operate for religious, charitable, educational, scientific, literary, or other recognized non-profit purposes Apply for 501(c)(3) status (or other classifications) through the IRS to obtain tax-exempt status Can raise funds through donations, grants, and fundraising Benefits: Tax-Exempt Status: Exempt from paying federal income taxes on income related to their mission. Eligibility for Grants and Donations: Eligible for charitable donations, which may be tax-deductible for donors. Limited Liability: Directors, officers, and members are typically protected from personal liability. Public Trust: Often viewed favorably by the public, which can help attract donors, volunteers, and support. Forms/Schedules: Form 1023: Application for Recognition of Exemption under section 501(c)(3) of the Internal Revenue Code. Form 990: Annual information return filed by most tax-exempt organizations to report income, expenses, and activities. Form 990-EZ: A simplified version of Form 990 for smaller tax-exempt organizations. Schedule B (Form 990): Required if an NPO receives significant donations (over a certain threshold). Form 990-T: Used by non-profits to report and pay taxes on unrelated business income (UBI). Credits/Tax Benefits: Donor Deduction: Donors may deduct contributions to the organization from their personal income taxes. Sales and Property Tax Exemptions: Some states offer additional tax exemptions to non-profits. Grants and Public Funding: Ability to apply for government and foundation grants.
Audience:
Strategies:
Benefits:
Forms/Schedules:
Credits/Tax Benefits:
| Structure | Audience | Taxation Type | Key Forms/Schedules | Credits/Tax Benefits |
|---|---|---|---|---|
| LLC | Small businesses, startups | Pass-through / Optional Corp | Form 1065, Schedule C, Form 8832, Schedule K-1 | Qualified Business Income Deduction, Expense Deductions |
| S-Corp | Small businesses with <100 shareholders | Pass-through | Form 1120S, Schedule K-1, Form 2553, Form 941, Form 1120S Schedule D | Qualified Business Income Deduction, Avoid Double Taxation |
| Non-Profit | Charitable & mission-driven entities | Tax-exempt | Form 1023, Form 990, Schedule B, Form 990-EZ, Form 990-T | Donor Deduction, Sales/Property Tax Exemption |
| Partnership | Co-owners in small businesses | Pass-through | Form 1065, Schedule K-1, Form 1040 (Schedule E), Form 1099-NEC | Business Expense Deductions, Qualified Business Income Deduction |
Accounting, Taxation & Payroll Processing Services refer to a range of professional services provided by accounting firms or specialized firms that assist businesses and individuals in managing their financial records.
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Trustpilot "Taxation may be viewed as the price we pay for a civilized society, but with proper planning and compliance, it can be minimized without compromising integrity."
Trustpilot "Accounting, taxation, and payroll processing services are the backbone of financial management. They provide the foundation for informed decision-making, regulatory compliance, and business success."
Accounting services typically include bookkeeping, financial statement preparation, and general ledger management. Taxation services cover tax planning, preparation, and filing for businesses and individuals. Payroll processing services involve managing employee payroll, tax withholdings, and payroll compliance.
Accounting services typically include bookkeeping, financial statement preparation, and general ledger management. Taxation services cover tax planning, preparation, and filing for businesses and individuals. Payroll processing services involve managing employee payroll, tax withholdings, and payroll compliance.
Accounting services typically include bookkeeping, financial statement preparation, and general ledger management. Taxation services cover tax planning, preparation, and filing for businesses and individuals. Payroll processing services involve managing employee payroll, tax withholdings, and payroll compliance.
Accounting services typically include bookkeeping, financial statement preparation, and general ledger management. Taxation services cover tax planning, preparation, and filing for businesses and individuals. Payroll processing services involve managing employee payroll, tax withholdings, and payroll compliance.
Accounting services typically include bookkeeping, financial statement preparation, and general ledger management. Taxation services cover tax planning, preparation, and filing for businesses and individuals. Payroll processing services involve managing employee payroll, tax withholdings, and payroll compliance.
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info@aegis.com
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