LLC? S corp? C corp?
Tax proposals being debated in Congress have some business owners thinking about whether they should change their corporate structures from sole proprietorships or partnerships to corporations or limited liability companies.
But owners considering a change to what kind of business entity they run need to consider more than just taxes. Entities are first about shielding owners from legal liability if the company is sued. Here’s a look at the different entities, the protection they give and how they’re taxed: Sole proprietorship:
owned by a single person whose home and personal assets are not protected in case of a lawsuit. Company income is reported on the owner’s 1040 personal return and taxed at individual rates.
Partnership: owned by two
or more people whose assets are not protected. Income is reported on personal returns and taxed at individual rates. Limited liability company,
or LLC: owned by one or more people whose assets are generally protected except in cases of fraud, or if an owner personally guarantees a debt. Income is reported on personal returns and taxed individually. S corporation: owned by up to 100 shareholders whose assets are generally protected from legal liability. Income is reported on personal returns and taxed individually.
C corporation: owned by any number of shareholders whose assets are generally protected. C corporations include Fortune 500 companies. These corporations are taxed on their income, and owners are taxed on dividend income they receive.