How Do Tax Obligations Vary by Business Structure?
The tax obligations of a business can vary significantly depending on its legal structure. For example:
Sole Proprietorship: The owner reports business income and expenses on their personal tax return, and the business itself is not taxed separately. Partnership: Similar to a sole proprietorship, but the income and expenses are divided among the partners, who report them on their personal tax returns. Corporation: A corporation is a separate legal entity, and it pays taxes on its profits. Additionally, shareholders pay taxes on any dividends received. Limited Liability Company (LLC): An LLC can choose to be taxed as a sole proprietorship, partnership, or corporation, providing flexibility in managing tax obligations.