Difference between Us Business Entities

[ finance  business  tax  llc  sole-proprietorship  partnership  s-corp  c-corp  ]

This is my reading note for C Corp vs. S Corp, Partnership, Proprietorship, and LLC: What Is the Best Business Entity?. You may consider to create a business probably to save some tax. There are different type of busniess entities in US and you should understand the differences between them before decide which type to choose.

Item Sole proprietorship Partnership S Corporation C Corporation
Pass-Through Yes Yes Yes No
Shareholder/owners 1 <=20 <=100 No limit.
Shareholder type N.A. people or other partnership Generally US citizen or permanant residents only Foreigener or foreigen entities (e.g., companies) are allowed
Income distribution N.A. could be different to ownership must be in same propotion as ownership could be different to ownership
Shareholder class N.A. N.A. One class only. Different classes are allowed, e.g., A/B stock used by Google
Tax filing for business No Yes, K1 Yes, K1 Yes
Tax on business 0% 0% 0% 21.0% as of now
Tax on owner tax as part of your income tax tax as part of your income tax tax as part of your income tax 23.8% as of now
Payroll No if no employee No if no employee other than owner Required even if no employee other than owner Required even if no employee other than owner
Protection of owner No, unless LLC No, unless LLC No, unless LLC Yes.
Complexity of maintainance Low Low to mid High High
Cost of maintainance Low Low to mid High High

Pass Through

Pass-through tax treatment means that the taxes of a business are literally “passed through” to the tax returns of the individuals who own the business. The tax deduction isn’t taken by the business, but it’s taken by the individual taxpayer(s) who own the business.

These business entities are not subject to double taxation—once as the business earns income and again at the owners’ level—as are corporations.

Limited Liability Company

Limited Liability Company or LLC is a business structure in the United States whereby the owners are not personally liable for the company’s debts or liabilities. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation (as long as they would otherwise qualify for such tax treatment), providing for a great deal of flexibility.

Written on March 14, 2021