What is the most common form of business structure?
Your business structure refers to the manner in which your business is registered as a legal entity.
Registered and recognized under a certain jurisdiction, your business is of great importance to the running and survival of your business. This holds true because your business legal structure will determine vital areas of your business such as tax liabilities, documents, and regulatory requirements.
The most common form of business structure
With over 23 million registered and recognized legal entities across the United States, the most common form of business structure is a sole proprietorship.
This business structure is owned and operated by a single individual who bears all the profits and liabilities that come from the running of the business.
For people who wish you have controlling shares in their business, make all the decisions, and own 100%, then the sole proprietorship business structure will definitely be a good fit.
Tax arrangements for a sole proprietorship
If your business is operating as a sole proprietorship, then you should know that the law does not view you and your business as separate entities. You are not separate from your business assets, and you will bear the cost of any liabilities or losses that emanate from running the business. This means that your personal assets and finances are not secure should your business ever run into debt or go bankrupt.
Tax-wise, you are expected to account for both your business expenses and personal income on the personal tax return you file to the IRS. This is so because the business is not taxed separately from you since you are one with your business in the eyes of the law.
You are expected to include the profit and loss information for your business on your Schedule C form. All profits from the business will be taxed, regardless of how much of it you liquidate.
Sole proprietorships allow you to gain some tax deductions, just like every other business structure. You can deduct operating expenses, marketing costs, and even meals from your profits and write off certain costs of assets for the business.
If you qualify for the new pass-through tax deduction established by the Tax Cuts and Jobs Act, you may be able to get up to 20% of your taxable income deducted. Note that you must have employees (if your income is over $315,000 for a joint filing and $157,000 for a single filing) or assets that are depreciable in order to take advantage of this deduction.
The deduction does not apply to business owners who provide personal services with an income exceeding $415,000 and $207,500 for joint and single filers respectively.
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