Choosing the most beneficial entity designation is one of the most important things to consider when starting a business. It is possible to change your entity type once you have established the business, but it is a costly and time-consuming process. That said, you should be careful in choosing the entity. The big question is, how to choose the right entity without any prior experience in setting up for one?
Well, there are resources available online, but DIY the process has its limitations. Browsing the sites of company filing services like Gov Doc Filing website can give you an idea or two about what such services can offer you. You can access details about the types of business entities, as classified by the IRS.
Consider the Implications of Each Entity Carefully
The question of how to get a Tax ID number is easy. The question of what kind of Tax ID you want is much less simple. A few of the entity designations, including C-corporations, S-Corporations, partnerships, and LLCs, are appropriate for what you might call “just a regular business.” The IRS treats them all differently, though. For example, a C-Corporation carries the assumption that it is a big business with lots of money. Therefore, it has the heaviest tax burdens. If it is a small business, it is a better idea to form an LLC company. What are the benefits of an LLC? One of the biggest ones is your ability to separate your personal finances from your business finances, in such a way that when there’s something wrong with your LLC (i.e., getting sued or going out of business) your personal finance remains safe. If some of your business partners are not U.S. citizens or permanent residents, then a partnership is the only designation that will legally recognize them as owners of the business.
When Is a Business Not a Business?
While Tax ID is traditionally related to conventional business structure, unconventional businesses can also benefit from setting up a company structure. It might even be to your advantage to apply for an EIN if you are not operating a business in the traditional sense of the business world.
For example, there is a tax advantage to filing as a sole proprietorship if your household hires employees. Even if you just have a babysitter and a dog walker, having a sole proprietorship EIN could save you a lot of money on Tax Day. Not only for profits, but nonprofits, estates, and religious organizations also need an EIN and benefit from the legal protections and saving on taxes offered by a particular business entity.
Choosing a business entity designation is not as easy as it looks, but quality services like Gov Doc Filing can help. But make sure that you have done your due diligence so that you won’t be blindly follow what’s offered by any services. Educate yourself first, and then start finding the right solutions from there.