There exist several structures of business organization, such as a Sole Partnership, a Corporation, a Limited Liability, and a Partnership. All these tax entities have their advantages and disadvantages to be investigated. It is the matter of the highest priority for any business owner to choose the right structure for running the organization. Considering the potential implications of the management activities can be vitally important for further financial progress.
Why do we need to understand the differences between business structures?
Is it so vital to know? During their academic studies, all the students make their first steps in completing financial writing assignments and investigations. While assignment writing services provide professional support for students making their life simpler, many future financial specialists use assignment services on the ongoing way to receive academic credits. However, when it comes to practice, some gaps in their knowledge may destroy an organization`s development and even lead to financial collapse. Choosing assignment writing service is not the right path for successful financial specialists. Gaining knowledge about business structures will be helpful for any person, whether the one runs a business or not. The following article is aimed to compare different legal categories of business organizations basing on the advantages and disadvantages of their tax systems to choose the most reliable and profitable one.
For day to day business it is a common thing to choose between sole partnership among individual entrepreneurs. Schedule C is used to fill the taxes on the individual income tax returns; besides, the government requires paying an estimated tax during the year. The disadvantage of a sole proprietorship is that the individual is always liable for all of the upcoming debts and any legal issues which may appear.
A partnership as a form of operating business that offers two ways of operating and an individual needs to choose between the general partnership and the limited partnership. In the case of a General Partnership, the partners need to share the liabilities between each other for all the partnership agreements. Some risks of debts and bankruptcy for the choosers of the General Partnership present, as well as in every form of operating a business. General Partnership taxation includes the requirements to file a 1065 tax return form. The organization is also obliged to share the profits and losses id and report them on Schedule K-1.
In Limited Partnership remains the same general business structure as in the General Partnership, but in the case of formatting a limited partnership, it will require more formalities, such as a certificate filed with the Secretary of State and an additional $800 franchise tax. The partnership profits and losses will still be shared between all the partners, and the partners will still need to report their distributive share of partnership income/losses on their tax returns.
It is a common thing to choose an LLC system as the most flexible form of operating. Many entrepreneurs prefer it because they can choose the form of taxation by themselves. There are different possible variants of LLC taxation: it may be taxed as a sole entrepreneur, as well as a partnership. In case the LLC owners choose to be taxed as a partnership, they will need to file an information return with the IRS on Form 1065, then a Schedule K-1 for each partner, the K-1 and the gain/loss on Form 1040. Also, LLC may prefer to be classified as a corporation. In that case, they pay income tax based on this new tax status, including state income tax, operating as an LLC and following the general agreement.
Meanwhile, a Corporation is particularly flexible to choose the taxation form being taxed as a corporation or as a partnership; it is obliged to pay income taxes as a separate entity at the corporate tax rate. A corporation is obliged to use form 1120 for reporting and filing taxes, and its owners pay taxes at the dividend rate.
Choosing a business structure for a business the advantages of LLC tax rates look rather inviting. LLC owners pay their taxes according to their tax rates. The tax rates can be paid depending on the number of LLC members or the total income of the owner. An LLC may be taxed at a lower tax rate than a Corporation in the case of the highest net profit.
On the other hand, all the income of an LLC is taxable, it means that even if the members don`t have any distributive share profits, they will be taxed in any way, while a Corporation owner does not need to pay taxes on profits unless they are distributed, commonly as dividends.