The legal aspects and tax demands for your enterprise will vary greatly based on the business structure that you choose. Each type holds its own unique benefits and drawbacks, so choosing the right one is vital for success. In our last blog, we looked at three of the six business structures that you can utilize for your company. Today’s blog will highlight the tax laws surrounding the remaining three structures and how that can help or hurt entrepreneurs. As some of the top tax attorneys in Maryland, we’re ready to help you with planning your business. JDKatz has offered the best tax advice and litigation to Maryland and Washington D.C. since 2000. When you’re in need of comprehensive legal assistance, we’re here to help!
A partnership consists of two or more people who decide to work together in a business. This structure is generally divided into either general or limited partnerships. The first option means that partners all manage the company as a team and share the tax obligations. A limited partnership offers the option of limited liability for certain partners. These people will serve as investors who do not have an active role in the management of the company. The benefit here is that the debt and tax liabilities do not fall on limited partners. In terms of taxation, partnerships “pass through” any financial gains or losses incurred during the tax period. Each partner is responsible for reporting their share of the income on their own tax forms, along with reporting that amount on Form 1065. Partnerships can become quite complex when it comes to logistics due to the multiple number of “bosses” involved. Each partner has full control in their company actions, whether it be a major decision or a financial incursion.
This variation is similar to the C corporation structure, yet its differences are much better suited for small businesses. The benefit of being able to raise capital for ventures through shareholder investments is an attractive aspect of S corporations. Another reason that owners will choose this route is because the financial gains or losses will “pass through” to the shareholders, where each person’s income is documented and taxed on their individual tax forms. Being able to avoid federal double-taxation is a major benefit for small businesses looking for ways to optimize income while avoiding complications. S corporations are required to go through many of the same complex procedures as the original structure. The accounting and legal costs for this structure can quickly add up. With so much complexity, it’s best to talk to a professional tax attorney to avoid accidentally incurring tax evasion penalties.
Limited Liability Companies
LLCs are a popular structuring option due to their dual benefits. In essence, LLCs combine the best parts of corporations and partnerships. Owners can benefit from liability protection for losses and tax debts while also avoiding being taxed twice for income. Limited Liability Companies can also hold as many shareholders as desired, which gives more flexibility for who calls the shots and how much capital can be gained. An LLC’s ability to operate depends on the state that your business resides in. Maryland business owners must file a Personal Property Return Form, known as Form 1, in order to work in compliance with state law. In any case, LLCs have their own inherent complexities that can be difficult to properly navigate.
Starting a business involves a huge number of important decisions that need to be made before things are up and running. When it comes to figuring out your business structure, a lot of forms and processes need to be completed. JDKatz has provided a wide range of services for 17 years, from qui tam lawsuits to simple tax preparation help. Our team of tax attorneys can help Maryland residents with a wide variety of legal needs as well, from civil litigation to estate planning. Our team is always striving to provide the best services possible to our clients. Contact us today to receive the help you deserve!