What tax structure is best for my business?
There is no single right answer that works for every business when it comes to choosing a tax structure. Choosing the best will depend on your business’s financial situation. Here are three different structures to consider:
LLCs - LLC owners report business income and losses on their personal tax returns. A limited liability company (LLC) is not a separate tax entity like a corporation. An LLC is what the IRS calls a "pass-through entity," like a partnership or sole proprietorship.
C Corporation - The profit of a C corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders.
S Corporation - The S corporation itself is not subject to federal income tax. Instead, the shareholders are taxed upon their allocated share of the income. Shareholders do not have to pay self-employment tax on their share of an S-corporation's profits.
As with any major business decision, it's best to consult with a tax professional or attorney to determine which tax structure is best for your business.