Starting a business means endless decision-making. From the business’ name to the strategies you want to pursue to the platforms you want to tap, making choices does not stop. However, if there is one decision that is crucial to your business’s future, it is deciding the type of tax structure you want for your company.

Understanding the options can help you decide faster and more effectively. This article will show you four different types of business entities you can choose and how each can affect your taxes. 

Type 1: Sole Proprietorship

If you own and handle the business alone, then you could use this structure. The sole proprietorship is the simplest and most common structure that beginner entrepreneurs for which can opt. If you register with this business type, the Internal Revenue Service will view your identity and your business as one. That means your taxes and your business taxes are the same. Generally, however, you have no tax aspects in this type of business. 

Benefits: 

• Your business income would also serve as your personal income, and it is subjected to your ordinary income tax rate, which can help you save.
• If your business belongs to the category with taxable income below the minimum set, that could save you a 20 percent deduction off your qualified business income.

Type 2: Partnership

If you own a business with a partner or set of partners, your business can fall under the partnership category. More than one person contributes to all business aspects in this setup, including finances, skill, and labor. At the same time, all partners share the profits and losses of the business. 

If you apply to this type of business entity, every registered business owner within the partnership still needs to report its gains and losses on their individual tax returns. Taxation for this business identity might be more complicated than others, but it would not require you to pay the entity taxes.