J.K. Lasser's Small Business Taxes 2022

CHAPTER 1Business Organization

1. Sole Proprietorships
2. Partnerships and Limited Liability Companies
3. S Corporations and Their Shareholder-Employees
4. C Corporations and Their Shareholder-Employees
5. Benefit Corporations
6. Employees
7. Factors in Choosing Your Form of Business Organization
8. Forms of Business Organization Compared
9. Changing Your Form of Business

If you have a great idea for a product or a business and are eager to get started, do not let your enthusiasm be the reason you get off on the wrong foot. Take awhile to consider how you will organize your business. The form of organization your business takes controls how income and deductions are reported to the government on a tax return. Sometimes you have a choice of the type of business organization; other times, circumstances limit your choice. If you have not yet set up your business and do have a choice, this discussion will influence your decision on business organization. If you have already set up your business, you may want to consider changing to another form of organization.

According to the Tax Foundation, 92% of all businesses in the United States are organized as sole proprietorships, partnerships, limited liability companies (LLCs), or S corporations, all of which are “pass-through” entities. This means that the owners, rather than the businesses, pay tax on business income. The way in which you set up your business impacts the effective tax rate you pay on your profits. Taxes, however, are only one factor ...