The Era of Entrepreneurs

Setting up of Businesses

Every entrepreneur needs to understand the importance tax as they plan to set up their entity. The process is complex but can be broken into simple steps:

Choice of Entity:

There are 5 basic structures are listed as follows: -

1. Sole proprietorship: An unincorporated business owned by an individual. The taxpayer and their business are considered one for tax purposes.

2. Partnership: An unincorporated business with ownership between two or more people.

3. Corporation: Also known as a C corporation. The shareholders and business are considered different for tax purposes.

4. S Corporation: A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders. For all tax purposes the income flows through the shareholders.

5. Limited Liability Company: Business ownership structure that protects shareholders’ personal assets from losses and debts. The liability is limited to the amount invested in the company. Owners and partners are not accountable for the firm’s losses and debts

Based on the above understand if it works best considering your business idea.

A lot depends on current and future liquidity of capital, number of employees, kind of business, asset protection etc.

Tax Year: A tax year is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:

1. Calendar year: 12 consecutive months beginning January 1 and ending December 31.

2. Fiscal year: 12 consecutive months ending on the last day of any month except December.

Business taxes:

IRS taxes business based on the above structures are standard for each year based on income, type of entity & other criteria. The state taxes vary with each state and should be checked before entity incorporation in that particular state.