Let me start by first defining what the heck I mean by the corporate structure of your business – it’s just the kind of company that you have. This is a registration process that you go through with the state where you live/operate your business.
If you haven’t done anything with this yet, you are considered a Sole Proprietor, which is where we all usually start. You can totally get your business started here, but you don’t want to stay here long. You have legal exposure and also it’s super expensive from a tax perspective.
The next step that business owners usually take is to form an LLC. This gives you legal protection (as long as you are doing things properly) but it’s treated exactly the same as the Sole Proprietor (expensive) from a tax perspective. (In some states it makes more sense to create a C-Corp instead of an LLC, so you will want to get individualized advice around this.)
Once you start to generate a profit/paying yourself in your business, your tax bill will go up quickly, and it usually catches new business owners by surprise. At this stage of business, we typically recommend that our clients look into electing to be taxed as an S-Corporation.
Not only are the overall tax rates lower, but there are deductions that are available to an S-Corp that aren’t even available for a Sole Proprietor or LLC. The savings can be significant.
If you went the C-Corp route, you will want to elect S-Corp immediately so that you don’t encounter any issues with how you are taking money out of the business.
(When you elect S-Corp, this is just your tax status – for legal purposes, you are still an LLC or Corporation.)
The costs for creating an LLC range from state to state and you will want to get customized advice for your state & situation before making any decisions here. It’s worth investing some time & money into getting the best advice that you can with this – it’s a foundational building block for your business and you will reap the benefits or suffer the drawbacks for the whole time your business is active! We refer all of our clients to CorpNet for all of their corporate structure & compliance needs, they are wonderful. Email her – aberen at corpnet dot com, let her know that Empowered Profit sent you and she’ll take great care of you.
And, if you already have your corporate structure set up but need to get a tax strategy in place, let’s talk today!
This is provided as information only and as a starting point for a conversation with your own legal and accounting team, this should not be considered legal or financial advice. All of these decisions are based on a number of factors and we cannot guarantee that you will experience any specific results based on any information provided. Please speak with your own retained professionals to ensure that you are making the best decisions for your business & personal situation.