Welcome to our new blog series, "The Top 30 Things Start-ups & Small Businesses Need to Know." We will begin with topic #1: "Entity Selection."
Entity selection is one of the most important decisions you will make for your business. There are many varying levels of formation from sole proprietor to corporation. Which one should you choose? Is your current structure the best option considering the new tax law? It really depends on the details of your business and your particular tax situation. Some considerations to keep in mind are limiting your liability and taxes and matching the entity selection to the long-term goals of the business.
Many will gravitate to a Limited Liability Company (LLC) just for ease of formation, but that is not always the best choice (However, with an LLC you can morph into another structure if needed). S Corporations are another popular formation type, often due to the desire to save on self-employment tax. While this is a valid reason to choose an S Corporation, you still need to make sure you pay owners of the S Corporation a fair market value wage to avoid issues with the IRS. The C Corporation has become more favorable with the passing of the new tax law, as it now has a flat rate of 21%; However, double taxation with dividends is still a factor, so C Corp formation is still not that attractive for many small businesses.
For more information about the importance of entity selection, contact us anytime at (302) 798-3300 or firstname.lastname@example.org.