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There are many things to consider when starting a business. One of the first concerns should be organizing the business itself. There are many ways to organize a business in the United States. Each type of business has its advantages and disadvantages for taxes and operations. Here is some business tax advice from a Reno accountant about making the right choices for your company.
Sole Proprietorships
The Sole Proprietorship is the most common kind of business in the US. In this type of business, one person is responsible for everything. This includes daily tasks, owning assets, profits, losses and taxes. The owner would need an accountant to give business tax advice. The advantages of a sole proprietorship are that it is easy to set up and run, the profits do not have to be divided, and the owner calls all the shots. Disadvantages are that the business and its owner are inseparable according to the law. This means that if the business gets into legal or tax trouble, your personal property could be forfeit.
Partnerships
Another common business type is the partnership. Partnerships involve two or more running the company and sharing responsibility. As in proprietorships, the partners’ personal property can be forfeit if there are problems with taxes or lawsuits. Partners need to have clear legal agreements, to prevent disagreements about profit sharing, personal contributions, and inheritance. An accountant will tell you that partnerships’ advantages are that the work and troubles of running the business are shared, as are the taxes. Partnerships are usually short-lived, ending with the death or departure of one partner.
Corporations
The corporation is a more complex way to organize a business, but it has many advantages over other models. A corporation is an “entity” that is formed and registered in its home state. A business charter sets forth the corporation’s purpose, as well as whom its shareholders, or owners, are. The shareholders elect a corporate board, which directs the company’s operations. A Reno accountant is needed to give corporate business tax advice and to ensure that state and federal tax laws are followed. Taxes are generally higher. Corporations allow the owners limited legal and financial responsibility in lawsuits, debts or even bankruptcy.
Limited Liability Companies (LLC)
The LLC is a newer business class that works like a hybrid of a partnership and a corporation. LLC owners are listed as “members” and organizational paperwork is filed that sets out its purpose and terms. The main tax benefit for an LLC is that it is taxed at individual rates instead of higher corporate rates. Members also have limited legal and financial liability. An LLC cannot have more than two corporate features, like continuity of the agreement, management centralization, asset ownership, and ownership transferability. If it has more than two of these, it is re-classified as a corporation.
Before starting a business, talk to a Reno accountant about how to begin. Get good business tax advice and figure out your goals. If you have modest goals and do not want to share profits, a sole proprietorship is best. If you and someone else share the desire to make a business work and are committed to it, a partnership could benefit you. More upward-minded businesses should organize into corporations or LLC’s, depending on how they want to structure operations. Remember to ask about taxes, as each method’s tax liability varies.