Financial Preparation for Your Business
During our entity tax planning services, we will establish your business’ entity, and discuss tax structure, filing requirements and other critical pieces of financial information you’ll need to succeed based on what type of business you are operating.
Understanding Sole Proprietorships
Any individual running a sole proprietorship, without forming some type of entity, must report his or her business’ income and deduction on their own federal and state tax returns, in addition to any loss and gain. For this reason, sole proprietorships do not require their own separate legal entity, and no owner liability protection will be issued to the individual running the business.
How to Handle Partnerships
Even if you don’t establish yourself as a specific entity, any two people that form and operate a business together will be taxed as a partnership. Regardless, you still need to file an income tax return – even though partnerships are not subject to income tax. In addition, any net income general partners receive will be subject to self-employment tax, but income apportioned to limited partners will not. In general, capital disruptions to partners are never taxed.
C Corporations: What You Should Know
When you designate your business as a C corporation, it’s considered a separate taxable entity for both federal and state income taxes, and requires an entity-level tax payment on its income and gain. However, only the actual C corporation itself is able to take advantage of the loss or deduction that occurs. The shareholders of a C corporation must additionally pay tax on their business’ distribution of corporate earnings and profits.
Preparing for S Corporations
Oppositely, an S corporation is not a separate taxable entity where federal and state income taxes are involved. The shareholders of an S corporation are required to pay a share of the income and gain that comes about by their company, and may be able to offset their other income with the help of the entity. The RMG team must play a large role in deciding whether or not your business is actually an S corporation, since not all corporations are eligible to hold the title.
Navigating Limited Liability Companies
Most commonly referred to as an LLC, limited liability companies are not a separate taxable entity for most federal and state incomes taxes, but if it only contains one member, then it’s usually treated as a sole proprietorship. Any LLC that has more than one member requires a tax on each person’s share of the company’s income and gain. As with an S corporation, an LLC may be able to use the entity’s losses to offset other income.
Contact RMG to Start Entity Tax Planning for Your Business
One of the most important components of a successful business involves proper tax planning, so that your business can grow on a solid foundation, and you can receive decent tax benefits. If you’re interested in trying our entity tax planning service, contact us by calling 973-712-5000 to schedule an appointment.