Before starting a new business, you should understand your future tax responsibilities. This can help you avoid complications and run a smooth operation. Every decision matters, but selecting a business structure that fits your needs is crucial. It will determine the taxes, liability and legal nuances of your business.
Choosing a proper business structure
The first step to understanding your tax obligations is to select an optimal business structure. This decision will depend on the number of partners and your purpose. Each structure has distinctive characteristics and will create specific liabilities and tax responsibilities.
In Ohio, you can choose between six different for-profit business structures, as follows:
- Sole proprietor
- Partnership
- C corporation
- S corporation
- Limited Liability Company (LLC)
- Single Member LLC (SMLCC)
Your chosen structure also determines if you will separate your assets and finances from your new business. For example, sole proprietors and partnerships combine your personal and business assets. A corporation or an LLC can allow you to separate each sphere and protect your individual interests in case anything goes wrong.
If you have business partners, consider their participation percentage when choosing a structure. It is also essential to ensure everyone understands their responsibilities and acts accordingly. Consequently, complying with legal and tax requirements will help you avoid trouble.
Tax implications for small business owners
The taxes you must pay will be linked to your business structure. Before making the final decision, you should understand your responsibilities. This includes determining if you must collect sales taxes and choosing an appropriate tax return form.
A business startup attorney can guide you through your journey. They can outweigh the benefits of each structure to determine which one fits your business needs. Additionally, they can help you plan lawful methods to save on taxes. Each small business has unique characteristics with different tax and legal obligations.