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Choosing the Right Business by Choosing the Right Tax

We're taking a look of the complicated nuances of business tax and breaking it down piece by piece for our readers.



A key consideration in choosing the right business type (sole proprietorship, LLC, partnership) is picking which IRS category helps you save money in the long run. Of course you must meet certain technical requirements to be a certain type of business. For example, a partnership can't have just one partner. However, another deciding factor in business selection should be tax treatment. In other words, how much or how little will the IRS tax your business.

In the search for favorable tax treatment, businesses usually want to minimize federal income and employment taxes.

However, not every business type fits with every tax category. So the search is really kind of circular. A business wants to choose its business type by choosing its desired tax category but each tax category excludes certain businesses. So what then must the sane individual do in order to pick favorable taxation while keeping all of their hair? Don't worry. We will unpack this all in the upcoming articles about taxes (which are sure to cure your insomnia). For now, consider the table below to help you familiarize yourself with the tax categories available to each business.


Available Tax Categories Based on Type of Company

Here's some lingo to keep you looking cool. Under IRS standards, a business can generally be taxed under sub-section C, K or S of the tax code (hence the "Sub- . . ." colloquialism) or instead listed as a disregarded entity. Disregarded entities are simply taxed along with a business owner's personal taxes.


Each form of ownership has a default tax category (denoted with an asterisk). A business owner may opt in to another category by filing a form to that effect with the IRS.

LLC- Single Member Only

  • Disregarded*

  • Sub-C

  • Sub-S

LLC- Multi Member

  • Sub-K*

  • Sub-C

  • Sub-S

Partnerships (but not Limited Partnerships)

  • Sub-K*

  • Sub-S

Corporations

  • Sub-C*

  • Sub-S (but only when eligible)

Note from us: Empowering the market through the availability of information is our passion. If there are any topics in the areas of real estate, construction, litigation, or business (including IP) law you would like to learn more about, email us at info@theWTfirm.com with your suggestions. Leave out any personal information and we will add your topics and questions to our next post.

We post new and informative articles every week!! Stay tuned for our upcoming podcast and tutorials that can help you with some of your legal questions.

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