Calculating costs and taxesChoosing the right business structure is among the most important decisions you need to make when starting a business. The legal entity you choose will affect how you operate, as well as your tax obligations. This decision requires due diligence.To ensure that you get your business taxes right and avoid hefty penalties, hiring a tax accountant in Salt Lake City is advisable. This professional will help you understand your tax obligations and assist you in filing your returns.

Here are the different ways tax obligations differ depending on your legal business entity:

Sole Proprietorship

In this business structure, there is no legal distinction between you and the business. Your personal and business taxes are not separated. A sole proprietorship has the lowest tax structures compared to other business entities. The downside of this structure, however, is that you will pay taxes on all your income whether it comes from your business or not.

Partnership

In this entity, the business is owned by two or more people who share profits and losses. The tax returns for a partnership are divided among the partners based on their company shares. The partners should, therefore, include the company’s debts and taxes on their individual income tax returns. The downside of this structure is that all partners are personally responsible for each other’s debts.

Corporation

This type of business is legally separate from its owners, and each owner’s shares are represented by the amount of his or her investment. The tax obligations of the company are separate from the personal taxes of the owners. A corporation has the highest administrative costs compared to other entities.

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Limited liability companies have features of both partnerships and corporations. Business owners have shared tax liabilities, but their personal and business obligations are separate. The owners, however, still pay self-employment tax.

Understanding your tax obligations will help you choose the right structure for your business. Use this guide when making that important decision.