Choosing what kind of entity is right for your company can feel overwhelming to new business owners. Pathfinder Business Strategies covers this information more thoroughly in our online coaching programs but here are the fundamentals for setting up an efficient tax strategy for your business and how to avoid a tax scam such as business tax deductions for offshore trusts or International Business Corporations. Pathfinder Business Strategies has found that these entities are often associated with a tax scam. If your business is structured properly, there is no reason to reach offshore in other jurisdictions; we can accomplish all the necessary asset protection and tax strategy tools with domestic entities.
There are five types of business entities that investors can take advantage of many business tax deductions, tax write offs and other efficient tax strategies: Sole Proprietorship, General Partnership, Corporations (“S” and “C”), Limited Partnerships and Limited Liability Companies (LLC’s). In this blog we only going to cover two of the five entities, Sole Proprietorship and General Partnerships. The other three will be covered in our next blog.
Sole Proprietorship is the easiest method of business. There are no corporate documents to file except possibly a business license. You simply print up your business cards and go. However, the danger to a sole proprietorship is that your business AND personal assets are at risk from business liabilities. That means your investments, your home, your car, and your bank accounts are not protected or separate. In addition, sole proprietorships are subject to a self-employment tax of 7% on the first $85,000 in income. The cost of set-up and maintenance is a small percentage of that amount. Pathfinder Business Strategies recommends looking at structures for efficient tax strategy.
A General Partnership is an association of two or more people in a business. No formal filing is required and you do not need a written agreement. It is also the most risky of the five entities. Because you have one or more partners, you are responsible for not only your own business liabilities or problems but also those of your partners. General Partnerships are considered as joint and several liabilities, which mean that if a judgment is held against your business, the complaint can be enforced separately or jointly among the business partners. You could be responsible in a lawsuit primarily because you have more assets than your partners do. This appeals to some owners because of multiple partners and investments but generally, Pathfinder Business Strategies discourages clients from this financial tax strategy, also.