Choosing a Business Entity

Many individuals and companies choose to incorporate for a number of reasons, but there are others who actually do it for the wrong reasons. To help you better understand, it is necessary to look at a couple of examples of when incorporating should be avoided.

Here are the top two reasons why it should be avoided:

• The first reason that should always be avoided is when a business entity or company is formed in order to avoid paying taxes. In most cases, this is done by incorporating in a state where the business entity cannot be taxed. While there are some exceptions to this rule, including some special rules adopted by certain states, generally speaking, incorporating in every state in which you conduct business will get you an exemption from paying taxes on your income. However, it is important to note that some states have made it illegal to incorporate solely for the sake of avoiding taxes. Therefore, you should always consult with a qualified tax professional to make sure that incorporating is the right thing for you and your business entity.
• The second reason to avoid incorporation is when business entities are set up simply as a way to receive a tax write off. In most cases, this is done because the business entity itself doesn’t do any work. Therefore, in order to claim a tax write off, the business entity might need to incorporate in a state in which it actually performs some or all of its work. Unfortunately, this can make it difficult or even impossible for your business to operate unless it is properly incorporated.
• The third reason to avoid incorporation altogether is when a business entity is set up in order to avoid paying payroll taxes. In short, many businesses set up a business entity identification to allow them to circumvent payroll taxes entirely. Unfortunately, in many cases this is perfectly legal and is only done with due diligence by the business owners themselves. Because of this, it is imperative that you be absolutely sure that you are doing everything within your legal rights to ensure that you aren’t avoiding paying any taxes at all.

Because business entities are so commonly set up in order to avoid paying taxes and because they often come attached with a great deal of jargon, it is often hard for individuals to know what they are looking at when it comes to business entity identification. For this reason, it is often wise to hire an accountant or business professional that can help you understand exactly what you’re dealing with on a basic level. Because so many businesses use business entity identification to separate themselves from their competitors, it is vitally important that you have someone on your side who understands how this identification works and how you can take steps to protect yourself legally. Because so many businesses incorporate, it can be easy to lose track of what your own business entity is and who is responsible for paying its taxes.

Finally, when you have a business entity identification, it is imperative that you understand what kind of tax deductions you can take. By knowing these kinds of things upfront, you’ll be able to take all of the deductions that you qualify for instead of putting yourself in a bind later down the road. After all, there are a lot of great deductions that can be accrued by your business entity which you may not even be aware of. If you take the time to educate yourself about business entity identification and what deductions are available, you will be able to take advantage of every tax break your business entity to qualify for.