When it comes time to finally start that your dream business, a lot of steps need to be taken to ensure that everything is done correctly. From accidental tax evasion to improper payments, the business taxes associated with your company can quickly become very complicated. Hiring a trusted tax attorney for your Maryland or Washington D.C. business can be very helpful for getting everything done correctly and avoiding costly tax evasion penalties. JDKatz is your source for expert tax advice and representation. Our experienced team can help with a comprehensive amount of services, including business structuring. There are six main setups to choose from, with each structure offering specific benefits based on your enterprise type. Today, we’ll look at a few of these options and discuss how they can hurt or hamper your business operations.
To start, this simple structure involves you and only you as the owner and only you. This unincorporated structure gives no buffer between proprietor and business, giving the entrepreneur all of the risks and rewards. No actions are generally needed to declare this status, as you are designated as the sole proprietor once you begin your business. This isn’t to say that you won’t need to obtain the correct permits to operate a commercial operation. Sole owners have the
advantage of possessing complete control over all operations and paperwork. All income you receive will be counted as personal income, which ultimately can make tax preparations easy. However, it’s important to note that the burden is all on your shoulders if the business goes south. Sole proprietors are personally liable for all financial obligations. Oftentimes, sole owners can become stressed with the burden of gathering enough finances to properly pay all of their debts in a comfortable manner. This structure is an inexpensive way to start a business, but it will quickly become a burden once the company starts expanding.
While many people imagine health food employees doling out groceries, cooperatives are actually a more common occurrence in our society. Essentially, co-op members own and operate the business as a team, working at the business and splitting up the profits amongst all members. Anyone who buys into this business has a say and power in helping form the direction the company is heading in. The important factor here is that a collective of people has decided to come together to start an operation with an agreed upon strategy and goal. One thing people do not know is that cooperatives are not taxable entities. The taxes to be paid are taken out of personal income, meaning that you are only being taxed once. Cooperatives are also lax in terms of membership and leadership, where a board member leaving will not result in dissolution. The fluidity and adaptiveness of cooperatives are very positive features, but in some cases the lack of participation can equate to a major disturbance of operations. Active participation is needed for cooperatives to thrive.
Many businesses take the form of a corporation (or C corporation). This structure consists of an independent organization that is technically owned by the shareholders that invest in it. The burden of taxation falls on the corporation instead of the investors, offering an attractive option for people looking to gain capital without the complicated corporate taxes. Corporations are great vehicles for generating equity and income for investors and employees alike. Selling stocks makes raising capital a much easier process. However, the complicated process of taxation and structuring can make corporations an intimidating endeavor. The fees and general costs of operating an organization like this can be great, generally meaning that only larger entities with more capital can afford the expenses. Unless you have the finances, becoming a C corporation may not be the best choice. The taxation process here can be very complex and will require the help of a professional tax attorney.
Your enterprise can benefit greatly from one of these structures based on its direction and needs. Companies often go through a growing process, sometimes changing their business structure several times. Growing companies that start as sole proprietorships may change into a corporation. Next time, we’ll cover three more business structures and their associated benefits and drawbacks. Here at JDKatz, our Maryland tax attorneys are ready to help with all of your tax needs. Contact us today to learn more about our tax law services.