Types of Businesses That We Help

Small businesses come in several entity types. The tax treatment of each is different. Here is a short overview of the entities we work with and what changes for each.

Sole proprietor

The simplest structure. Business income and expenses flow through Schedule C on your individual 1040. You owe self-employment tax (15.3 percent) on net earnings in addition to income tax.

Single-member LLC

For tax purposes, a single-member LLC is treated as a sole proprietor by default. The LLC structure provides liability protection, but the tax filing is identical to Schedule C. You can elect to be taxed as an S-corp if it saves money.

S corporation

An S-corp election (Form 2553) lets you split your income between salary and distribution. Self-employment tax applies only to the salary portion. Done right, this can save substantial tax. Done wrong, it triggers IRS scrutiny for unreasonably low salary.

Partnership

Multi-owner businesses default to partnership taxation (Form 1065). Partners receive K-1s reporting their share of income, which flows to their individual 1040s.

C corporation

C-corps are taxed at the entity level. Distributions to owners are taxed again as dividends, creating "double taxation." Most small businesses do not use C-corp status, but specific situations (e.g., reinvesting profits, certain ownership structures) call for it.