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 between being 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.

Credits/Tax Benefits:

• Qualified Business Income Deduction: LLCs may qualify for a 20% deduction on net business income under certain conditions.
• Can also deduct 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.

Credits/Tax Benefits:

• Qualified Business Income Deduction: Like LLCs, S-Corps can qualify for up to 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.

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.

Partnership

Audience:

• Two or more individuals or entities looking to co-own a business and share in profits and losses
• Best for professionals, such as law firms, medical practices, or real estate partnerships

Strategies:

• General partnerships (GP) or limited partnerships (LP), with differing levels of liability for partners
• Can draft a partnership agreement to define roles, profit-sharing, and dispute resolution
• Profits and losses pass through to partners’ personal tax returns

Benefits:

• Pass-Through Taxation: Profits and losses flow directly to partners, avoiding double taxation.
• Shared Responsibilities: Partners can combine skills and resources to manage the business.
• Flexibility: Partnerships can be structured with different roles for each partner (e.g., general vs. limited).
• Simplicity: Generally less paperwork and formalities than corporations or LLCs.

Credits/Tax Benefits:

• Business Expense Deductions: Partnerships can deduct business expenses, reducing taxable income.
• Qualified Business Income Deduction: Partnerships may qualify for a 20% deduction on net business income under certain conditions.

Summary Table: