4 business entities and tax structures to know before income tax filing

4 Business Entities & Tax Structure before filing income tax

Top 10 leading Tech, Entertainment and Food companies have seen their inception in this richest state of California. It wouldn’t be wrong to say that the business initiation and incorporation processes are extremely streamlined in this state and nation. Businesses in The States require more than just an idea – File for a Federal Employee Identification Number (FEIN), Incorporation Paperwork, Name, Trademark, and banking details, do not forget the mandatory Tax Filing.

But let’s not get ahead of ourselves and rush into a process right away – There are layers needed to slowly peel to understand the entire structure of Business set up from an idea to its launch.

What is a Business Entity?

Business entity is the type of legal skeleton you would want your business to have – whether you are a sole owner or whether you wish to have shareholders jump into the game, the onus and the choice of the entity type depends on the structure of the business and its future plans. eTax Services inc explains the types of entities, with the documents needed for each of them.

1. DBA

Doing Business As or ‘Sole Proprietorship’ is the type of business structure you would opt for if the following applies:

a. You are a single person in your business.

b. If you do not have much investment and want to start from scratch.

In this case, the owner is solely responsible for all the profits and loss, while being held accountable for all the debt and payments that are incurred by the company. Dba is also called a ‘General Partnership’ if there are 2 people who opt for this legal structure.

However, DBA recognition is at City / County level only, not at the state level – also, this is now replaced by more optimized legal structures that have added benefits, business brand prestige and choice of maximum budding entrepreneurs.

2. C-Corporation

One of the most commonly opted for the process – C-corporation separates the Owners from the Company, protecting them from any losses, debt, and legal prosecutions. The company can also enter contracts, sue or be sued completely separate from its management and incorporate Shareholders.

To begin with, the owner would have 100% of the stocks – then with shareholders in the picture, they can, in turn, appoint the Board of Directors who run the show. For any future listing of the company, C-Corporation works the best for attracting investment opportunities and this legal embodiment needs to have a set of Corporate ByLaws for its process operations and has more paperwork than the DBA. Still considered as the prestigious entity, corporation taxes on profits are a tad bit lower than the rest of the entities; however, tax filing can get tricky.

3. S-Corporation

Purely focusing on the Taxing segment, S-Corporation is the bypass solution to the ‘Double Taxation’ process – under C-Corporation, profits are taxed once and again when the profits READ MORE

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