April 27, 2021

Tax Tips for Business

Before you start your business, there are several factors to consider including the type of business, legal and tax implications for your business choice among others. Your business choice affects how you are taxed, your legal liability and operational costs. In this article,our main focus is on tax implications for four main types of business.

  • Sole Proprietorship 
  • Partnership
  • Limited Liability Companies
  • Corporations

Sole Proprietorship refers to a business run by a single owner. This is the simplest and most common form of business and the person who engages in it is called an entrepreneur, also known as Solopreneur which simply means Solo entrepreneur.

Other businesses under this include Single owner LLCs. Here, the owner is responsible for every aspect of the business and its operations. The revenue from a sole proprietorship or solopreneur  business is considered the owner’s personal income.

Partnership refers to a business owned by 2 or more people called Partners who are seen as one legal entity. Just like the sole proprietor or solopreneur, they are only taxed as personal income.  This means that the income is treated as the owners’ incomes. 

Under US’ federal law, such business structures are not taxable. Partnerships are also different from corporations because they lack any special income tax. Rather, what applies is that income generated from a partnership is shared between the numbers of partners based on their personal tax rates. 

Limited Liability Companies (LLCs) are one of the most flexible types of businesses found in the world today. They retain the tax benefits of sole proprietorships and the limited liability of corporations and they are also able to choose between different tax treatments.

These days, LLCs now get the same treatment as partnerships due to tax concerns. Unless of course, they specify that they are to be treated equally as corporations. Statistically, many of them prefer to be treated as partnerships.

Corporations are a separate legal entity created by shareholders. For tax purposes, they are seen as separate entities from the owners. This means that the profits generated by a corporation are taxed as the “personal income” of the company. The income earned by this business structure is usually taxed corporately using the corporate income tax formula. Incorporating a business protects owners from being personally liable for the company’s debts or legal disputes. Additionally, there are three main types of corporations:

  • C Corporation – This is the most common form of incorporation and it is taxed as a business entity. 
  • S Corporation – This is a pass-through entity like partnerships.
  • Non-Profit Corporation – This is often used by charitable organizations and they are tax exempt.

Thinking of starting a business? Great! You already know about the company types now but one more important thing you need to do is to register your business and there are several reasons why including:

  • Getting on record
  • Opening an account in your company name
  • Securing loans
  • Legal liability protection
  • Certificate of corporation
  • Hiring employees
  • Obtaining loans

So, Get started with that big idea today! And remember that Blusimba Technologies is here to help you take your business to the global stage digitally. Good reputation before customers

Sign up with Blusimba and get instant access to the best, most affordable and easy-to-use Digital Business Platform you will ever come across. 

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