Posted on November 09, 2005 at 16:48:24:
Starting a new business? How you structure the business entity has a lot to do with the taxes you’ll pay. For instance:
Simplest is a proprietorship, in which you report business income or loss on a Schedule C on your own tax return. But this offers no protection against personal liability for company obligations.
An S corporation does offer such liability protection. Income, losses, etc., are reported on shareholders’ personal tax returns. A partnership is similar, but offers more flexibility in allocating income and deduction items to individual partners.
A regular (C) corporation is less common these days, because of the double taxation applied to income, first at the corporate level, then at the owners’ individual level. That’s why more firms are starting as limited liability companies. LLC’s offer the same legal protection against liability as a corporation would, while being taxed as a partnership. There are few drawbacks.