There are several main business structures in the United States including S-Corps and sole proprietorships. Deciding on the correct type of business for your company can help ensure a strong start for your business. Here are some of the differences in an S-Corp and a sole proprietor as well as what you need to do when filing for your business status:
Structure: When it comes to basic structure, there are few differences between an S-Corp and a sole proprietorship. However, you will still need to fill out the appropriate paperwork on a state and federal level for both structures. For instance, you’ll need to complete Form 2253 with the IRS if you want to have an S-Corp.
Liability Protection: Because an S-Corp is technically a corporation, owners are protected from being personally responsible for any company liabilities. For instance, if the company is sued, the lawyers cannot go after the owner’s personal assets. A sole proprietor, on the other hand, does not have the same liability protection and may be liable personally for company losses.
Taxes: Owners of sole proprietorships are considered the same as their company when it comes to taxes. This means that the owner’s overall income, including any additional income, will be taxed together. In many cases, this can be a drawback for individuals who are starting a new company in addition to working another job. On the other hand, S-Corporation owners are only taxed on that company’s profits.
Filing for Your Company: Once you’ve chosen a company type that best suits your business model, you’ll need to apply for a Tax ID for your company, also known as an employer identification number or EIN. The fastest way to obtain your Tax ID is to complete an online EIN application with a trusted website like https://www.govdocfiling.com/.
The right structure for your company will depend on your preferences and business model. But, no matter what you choose, it is important to file the appropriate paperwork in a timely manner.