Hi, I'm Candace
Welcome to NewWay Accounting! Explore our resources for small businesses and entrepreneurs to help you maximize your profit and amplify your tax savings!
As a business owner, you probably know that there are potential tax-related upsides and downsides for every type of business entity. But the question is, what exactly are those tax advantages and how do they apply to you?
Deciding which legal business structure to form for your business is SO important! So let’s take a moment to lay out the tax pros and cons in a way that will hopefully make this decision easier to make.
As a “disregarded entity” for tax purposes, an LLC’s profits and losses flow through to its owners’ personal tax returns. From a tax perspective, there is no difference in how a sole proprietor is taxed versus an LLC. Note that from a legal standpoint, an LLC is considered a separate entity from its members, so it provides some liability protection to its owners. Generally, LLC members’ personal assets are not at risk if the company gets sued or cannot pay its debts.
A C corporation is a separate legal and tax-paying entity. Its profits, losses and liabilities are tied to the business, not its owners (shareholders). It comes with more complex compliance formalities than the LLC structure, but it also offers the highest level of liability protection for owners of the business.
And now we get to my favorite structure… the S corp! The S corporation isn’t a legal entity in itself but rather an option for a qualifying LLC or corporation.
Every business and situation differs, however I typically recommend clients to start with creating a single-member LLC and then electing to file as an S corp down the line once the tax savings of the S corp outweigh the associated fees.
If you are considering an S corporation for your business structure, but sure to check out my S corporation 101 guide and tax saving calculator!
And remember, it is always important to speak with an attorney and CPA prior to making these decisions for your business!
Candace is the founder of NewWay Accounting and is a CPA who specializes in working with fellow entrepreneurs. She strives to take the fear and anxiety out of taxes and help empower small business owners to feel more confident and in control of their finances.
Sign up to get tax and bookkeeping hacks for entrepreneurs delivered straight to your inbox twice a month!
Get ready to feel more confident and in control of your business finances!