Tuesday, November 21, 2017

How Do I Know Which Entity Type Is Right For Me?


If you are starting a business in any state, including Colorado Tax ID number registration is a must.  Establishing your business with an EIN number NC is the way to make your business official, from a legal standpoint.  Of course, there are many types of businesses.  The IRS even issues EINs to entities that bear little resemblance to what most of us think of as businesses.  For example, estates, charities, and houses of worship need EIN numbers.  How do you determine which entity type is right for your business before you apply for an EIN?

Do You Work for Yourself?

If your business is a one-person operation, then a sole proprietorship is probably the best designation for you.  Many sole proprietors are freelancers who are organizing all of their freelance gigs into one business.  You should also apply for a sole proprietorship EIN if you hire a babysitter or other household employee.

Avoiding Double Taxation

Corporations pay taxes, and so do the people who own them.  Bill Gates can afford to pay his taxes, and Microsoft can afford to pay its.  What happens to much smaller businesses owned by far less wealthy people, though?  The corporation entity type does not give them much protection from heavy taxation.  If you have a small business, even if it has several owners, it is a better idea to get a C-corporation EIN.  Another popular choice for small businesses is the limited liability company (LLC) entity type.  With an LLC, you cannot be personally liable for the debts or losses incurred by the business.  Your personal wealth is safe even if your business fails.

Once you choose an entity type, it is hard to change it.  Choose your entity type based on the needs of your business.

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