CPAs in Dallas Fortworth know that picking your business’s entity is one of the most important decisions you’ll make. Each entity option has its own advantages and disadvantages; your selection also has legal and tax implications.
Here’s what you need to know about picking the best entity for your business. If your current entity isn’t right for your business’s needs, a CPA in Dallas Fort Worth can assist you with changing your selection.
There are Different Taxation Rules for Entity Options
Your entity selection has a significant impact on how your business pays taxes. For example, if you decide to operate as a C corporation, you’ll pay a corporate tax rate on your business’s earnings. Any earnings that are distributed as shareholder dividends are then taxed at the shareholder level.
If your business is an S corporation or partnership, the earnings are taxed at the company’s owners’ tax rates. This applies even if the earnings aren’t distributed.
Aside from the different tax rates, there are also rules that only apply to a specific entity. Or, the application of a portion of the tax code may vary depending on your chosen entity.
A meeting with a CPA in Dallas Fort Worth will help you navigate the different tax rules so that you understand how they impact your business.
A Specific Entity May Align More with Your Company’s Goals
A certain entity is likely better suited to your goals for your business. Perhaps you want to spend a period growing and building your business; to do so, you intend to reinvest your earnings into your business.
If your chosen entity is a C corporation, this will help you with goals for business growth. Reinvesting earnings into the business often allows C corporations to lower their current tax obligation.
However, if you’re running a relatively new business and need to access the earnings for personal needs, an LLC or partnership entity may be more conducive to your plans. An LLC offers multiple options for how you pay taxes on your earnings while limiting your personal financial responsibility if the business fails.
Need more help on choosing an entity for your business? Contact a CPA in Dallas Fort Worth today!
