What kind of business do you run in Salt Lake City? Every entrepreneur should think about the benefits of different business setups. Sole proprietorships, partnerships and different types of corporations can all be a perfect fit. But which is right for your business in particular? The type of organization you run can have big consequences for your taxes.
A sole proprietorship is the most common small business setup. It’s popular because it requires almost no paperwork or expense to set up. It’s important to understand how taxes work for a sole proprietorship. For this type of organization, the business tax information goes on your personal tax return. Often, a business starts out as a sole proprietorship and transitions to another type of organization as it grows.
The downside of a sole proprietorship is that the business’s liabilities become personal ones. In a corporation, the business is an entity unto itself. Liabilities belong to the business, not the person who runs it. Large businesses are mostly run as corporations. There are several different types of corporation. The way business taxes work for a corporation will depend on its specific structure.
C-corporations are traded publicly. This means that people can buy shares in them through stock exchanges. This is a complicated type of business when it comes to taxes. Profits are taxed twice, first at the level of the corporation, and then again at the level of dividends. If the company liquidates, that will also be taxed.
S-corporations are taxed just once. In an S corporation, any profits or losses are passed on directly to the shareholders. An S corporation can have no more than one hundred shareholders. They cannot be partnerships. S corporations have to be domestic. There are other restrictions on this type of business.
A limited liability corporation has far fewer restrictions in Utah. It’s a common business setup in Salt Lake City. Shareholders can be located in other countries. An LLC is basically a pass-through structure. That means there is no tax at the corporate level. Everything is passed directly on to the members. However, the shareholders do not share in any liability.
Partnerships are a fairly simple small business setup when compared to corporations. They are similar to LLCs in terms of taxes. Partners are taxed on their share of the company’s taxable income. There’s no double taxation. Partners, however, are personally liable for the company’s debts. In that way, this type of business is more like a sole proprietorship.
When setting up any business in Salt Lake City, it’s a good idea to seek both legal and tax advice. Business taxes and liability issues are complicated. It’s important to take both into consideration as you try and find the most advantageous structure for your business.