by Esther Phahla, CPA, CTC, MST
Being a business owner comes with a number of substantial benefits: being your own boss, pursuing your passions, controlling the growth of the company. One benefit that’s often overlooked is the ability to use a business as a completely legal tax shelter. By taking advantage of tax strategies designed to protect business owners, you can keep more of your money in your pocket or use it for investments rather than lose it every year to the IRS.
Many factors go into designing an optimal tax strategy, but the important first step is deciding which legal entity to establish your business as. Your choice of a legal entity affects multiple aspects of your company’s future, including your personal liability, tax concerns and profitability. Businesses may not be people, but they do exist as unique and separate entities in the eyes of the government. Businesses are a collective enterprise that must conform to certain rules and regulations that are different than those experienced by individuals. This is why the government requires businesses to be registered and designations chosen.
There are two primary reasons why your choice of business entity matters. First, your personal liability is affected by which business designation you choose. For example, if your business goes bankrupt, you may or may not be protected from having to pay off its debts out of your own pocket. Second, the way tax laws are applied to the business will vary between each legal entity designation. This means that establishing your business as one entity over another could save you a substantial amount in taxes.
It is important to know the benefits and drawbacks of each business entity type. An Attorney can advise you on the legal ramifications. To get the best possible feedback in designing an optimal tax strategy for your business talk to a Tax Strategy Specialist.
