Starting Business. Choosing Legal Structure
This is the first step in forming a business. The 5 most common legal structures are:
Click on each one above to learn more about structures. Below, see a case study where a business made $100,000 in net income and the owner(s) pays different amount in business and personal taxes depending on the legal structure. Please note that certain assumptions were made:
The business is in a state with 0 income tax.
When Corporation, $60,000 salary was paid.
The owner is single and has no dependents.
| Tax / Type | Sole Prop / G Partnership | LLC (not taxed as corp) | S Corporation | C Corporation |
|---|---|---|---|---|
| Business Tax | 0 | 0 | 0 | 21% = $12,600 |
| Self-Employement Tax | 14.13% = $14,130 | 14.13% = $14,130 | 0 | 0 |
| Personal Income Tax | $9,752 | $9,752 | $14,774 | $12,002 |
| Payroll Tax | 0 | 0 | $6,000 | $6,000 |
| Total Tax | $23,882 | $23,882 | $21,827 | $30,602 |
| Type | Sole Prop | General Partnership | LLC (not taxed as corp) | S Corporation | C Corporation |
|---|---|---|---|---|---|
| Assets Separation | No | No | Yes (strongest asset protection) | Yes | Yes |
| Unique Name | No | No | Yes | Yes | Yes |
| Registration With State | No | No | Yes | Yes | Yes |
| Ownership | Single Owner | 2 Or More Owners | Member(s) | Shares (max 100, one type of stock) | Shares (unlimited) |
| Residency Requirement | None | None | None | US Resident Only | None |