If you’re launching a new business venture, you’re well aware of the myriad decisions you have to make. One of the most critical in terms of your financial accounting and income tax filing is your choice of business structures, sometimes referred to as tax structures.
You know their names. Sole proprietorship. Limited Liability Company (LLC). S Corporation.
QuickBooks classes often discuss the differences between them in depth, and you may also want to consult with an accountant before you make the decision. Here’s a brief overview of the major types:
Sole Proprietorship. You would usually choose this if you’re going into business by yourself. It’s not necessary to file any special papers to be a sole proprietor. It doesn’t cost any money, and it’s easy to set up. As the owner, you are personally liable for the company’s debts, and you report your profit or loss on your personal tax return.
Partnership. There are two kinds: General and Limited. If your company is owned by two or more people but you don’t want to file as a corporation or LLC, this is a good option. No paperwork is required to be a General Partnership, and, as in a sole proprietorship, the owners claim profit or loss on their personal income tax returns.
A Limited Partnership is more complicated. It’s expensive and complex, and is appropriate for companies in industries like real estate — not for most small businesses. Limited Partnerships are generally created by a “General Partner,” who takes on personal liability for the company’s debts. “Limited Partners” are aptly named; they have limited liability unless they function as a part of management.
Limited Liability Company (LLC). If you incorporate as an LLC, you’ll have limited personal responsibility for the company’s debts and any court judgements that might be directed at you. Like a Limited Partnership, it can be expensive and complex.
Corporation. Be prepared to complete a lot of paperwork if you choose this option, but you may want to go ahead anyway if you want limited or no personal liability for the company’s debts. There are multiple types. Corporations are good structures for business owners who want to protect their personal assets or who anticipate possible major debt or lawsuits.
QuickBooks requires you to declare a business structure to ensure that its tax reports are accurate. So a comprehensive QuickBooks training course will likely cover this issue. Be sure to give this issue a great deal of consideration as you assemble the framework of your new business.