One of the first decisions you’ll make when starting a new business is also one of the most important: choosing a corporate form or sole-proprietorship. Whether you decide to start an LLC or operate a sole proprietorship can have a dramatic impact on your tax burdens, business accounting practices, and your personal liability. Understanding the distinctions between the options below will help get your company off to a solid start.

What Are Different Ways of Forming Your Business?

1. Sole Proprietorship

A sole proprietorship is one of the easiest forms to establish, both in terms of the paperwork and your business tax preparation. You operate the company under your own name and report all revenue on your personal tax returns. While this approach might simplify some aspects of your tax filings, it may also make you ineligible for many common deductions and tax breaks that could lower your liability.

2. Limited Liability Company (LLC)

Unlike a sole proprietorship, an LLC is a separate legal entity, which shields you from personal liability for business debts. LLCs also qualify for business tax rates and deductions. You also have the option of claiming revenue as personal income, which may lower your bill in some circumstances.

3. Corporation

A corporation is also a completely separate entity, with all income taxed at the business rate. Depending on your industry and long-term plans, a corporation may be the ideal choice, but most states have strict business accounting and corporate documentation standards that must be met. For instance, all shareholders must pay personal taxes on the dividends they receive, and you’ll have to submit extensive paperwork on an annual basis.
 

Starting a new business can be a rewarding, confusing project, which is why entrepreneurs throughout Checotah, OK, rely on Joe Heard, CPA. Since 2001, this experienced consultant has provided the comprehensive financial services you need to succeed—from corporate formation advice to regular business accounting assistance. Visit his website for more on his capabilities. Call (918) 473-1492 to make an appointment today.