How to Choose the Best Entity for my Business

Are you thinking of starting a business? Maybe you already have a business but you’re questioning whether or not you have it set up as the best entity type for your situation. We’ve got some tips on how to go about this, as well as, an easy-to-view chart to help you compare the different entity types.

When it comes to choosing an entity when you start a business, the best one to use is a sole proprietorship. Why? Because it is easy to set up and maintain.

As your business grows, it will be important for you to ask your tax professional if there are ways that you can save money by switching your entity. Be aware that there are tax advisors that will want to sell you on setting up an LLC, an S-corporation, or even a C corporation. Always ask what the tax SAVINGS will be if you switch your entity. 

Nine times out of ten, given the right situation of gross income, owner wages, and profits, our recommendation is to set up an S-corporation.

Some benefits of having an S-corporation are:

• Protection of personal assets
• Not having to make any/large estimated tax payments, since much of that withholding is through W-2
• Saving on self-employment tax (could be thousands of dollars!)
• Possible qualification on pass-through entity tax (could be thousands of dollars!)
• Reduction of IRS audits compared to sole proprietorships
• No federal taxes required at the corporate level
• Pays less tax than an LLC

If you would like to see if your business would benefit as an S-corporation, contact our office for a comprehensive entity evaluation. We will take the business’s actual numbers and project the tax due, so the owner can SEE the tax savings.   

Check out our entity comparison chart to get a better idea of the similarities and differences of the various entity types!