The tax implications of each business structure are different. The most common business structures in the United States are sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. The tax treatment of each business structure is different, so it’s important to choose the business structure that is right for your business.
Sole proprietorships are the simplest business structure. A sole proprietorship is a business that is owned and operated by one person. The sole proprietor is personally responsible for all debts and liabilities of the business. A sole proprietor pays taxes on the business income on his or her personal tax return.
Partnerships are businesses that are owned and operated by two or more people. Partnerships can be either general partnerships or limited partnerships. In a general partnership, all partners are personally liable for the debts and liabilities of the business. In a limited partnership, only some partners are liable for the debts and liabilities of the business. Partnerships are taxed as pass-through entities, which means that the business income is taxed on the personal tax returns of the partners.
LLCs are businesses that are owned and operated by one or more people. LLCs can be either single-member LLCs or multi-member LLCs. In a single-member LLC, the business owner is personally liable for the debts and liabilities of the business. In a multi-member LLC, the business owners are not personally liable for the debts and liabilities of the business. LLCs are taxed as pass-through entities, which means that the business income is taxed on the personal tax returns of the LLC members.
Corporations are businesses that are owned by shareholders. The shareholders are not personally liable for the debts and liabilities of the corporation. Corporations are taxed as C corporations or S corporations. C corporations are taxed separately from the shareholders. S corporations are not taxed separately from the shareholders.
