Does my business Tax Identity matter?
by John Loe, Jr., CPAThe form of business organization you choose determines whether your business income is taxed at the corporate entity level or at the business owner level.
In most states, you can establish your business as a sole proprietorship, a partnership, a C or S corporation, or a limited liability company (LLC).
For tax purposes, the income that results from a sole proprietorship or a partnership is reported on the tax return(s) of the individual owner(s) and is taxed at the owner’s individual tax rates.
In a corporation, income is generally subject to two levels of taxation—at the corporate level when income is earned, and at the shareholder level, when dividends are paid. In a corporation that elects S corporation status, the income of the business is passed through the corporation to its shareholders and taxed at their individual rates, whether or not the income is actually distributed.
In the limited liability company (LLC), income is usually taxable to LLC members at their individual rates.
