Which is the best tax business entity structure for your eCommerce business?
With the new changes in the tax law, there are many options available for eCommerce business. It may be quite confusing trying to understand the advantages and disadvantages of various forms of tax business structures. Below are the most common tax business structures for your eCommerce business.
- Sole Proprietorship: It is the most simple, easiest and fastest way to start your business. You can start with as low as $100 and a bank account. This may also be a very risky alternative. In case of any legal disputes, your personal assets may be held liable to pay your business debts. You will be filing Schedule C as a sole proprietor along with your personal taxes.
This entity is best suited for eCommerce Entrepreneurs who want to start out with low capital and are okay with the risks associated with the sole proprietorship business structure.
2. Partnership: If you have additional partners taking on various responsibilities in the business, you can choose to be a general partnership. As a partnership, you will be required to file form 1065.
This entity is best suited for eCommerce Entrepreneurs who are starting a business with family, friends or additional partners.
3. LLC: Limited liability company has gained a lot of popularities the past decade. LLC is a legal structure which usually requires lesser paperwork and compliances as compared to a corporation. As part of the US taxation rules, LLC can elect to be taxed as a Sole Proprietor, Partnership, LLC, S or a C Corporation.
This entity is best suited for Entrepreneurs that want to maintain their eCommerce business separate from personal while benefiting from the legal protection offered by an LLC.
4. Corporation: You can elect to choose either S or a C Corporation.
S Corporation election can be filed by filing form 2553 with the Internal revenue service. Under the new 2018 tax law changes, S Corporations are eligible for additional 20% deduction on income from pass-through entities.
C corporation: The C Corporations new federal tax rates are 21%.
This entity is best suited for an eCommerce entrepreneur who eventually wants to expand, raise capital and take the company public
Other linking articles