Business Entities

Sole Proprietorship:

Tax Implications: Simple tax reporting (reported on owner’s personal tax return), subject to self-employment taxes (Social Security and Medicare), potential for higher individual tax rates.

Partnership (General or Limited):

Tax Implications: Pass-through taxation (profits and losses flow through to partners’ personal tax returns), each partner reports their share of income and expenses, subject to self-employment taxes for general partners.

Limited Liability Company (LLC):

Tax Implications: Can choose taxation as a disregarded entity (sole proprietorship), partnership, or corporation (C-Corp or S-Corp); default is pass-through taxation, flexibility in allocation of profits and losses, potential for self-employment taxes.

Corporation (C-Corporation):

Tax Implications: Separate legal entity, subject to corporate income tax (double taxation), potential for deductibility of employee benefits and expenses, dividends taxed at individual level.

S-Corporation:

Tax Implications: Pass-through taxation, avoids double taxation like C-Corp, limited to 100 shareholders, certain restrictions on ownership and types of shareholders, subject to self-employment taxes.

Cooperative:

Tax Implications: Pass-through taxation (profits and losses allocated to members), some cooperatives qualify for tax-exempt status, members report income on personal tax returns.

Nonprofit Organization:

Tax Implications: Potential for tax-exempt status (501(c)(3) for charitable organizations), donations to nonprofits are often tax-deductible for donors, limited ability to generate unrelated business income.