When it comes about owning the business mostly people know about three types of business ownership which is sole proprietorship, S Corporations and Partnerships. There are other types which are common as well but these are the ones which people prefer because of their benefits in the market. The business structure of partnership is different than the S corporation but both have the ability to get the corporate taxes avoided. There are some things which you need to know about both S Corporations and Partnerships in order to make the right decision to gain profits and work with the taxes without getting into any kind of trouble.
Simple Structure:
When it is about setting up the business, partnership takes over the S Corporation with the general partnership, you have a hand to work with. You are able to set up the business hand in hand with your partner along with sharing the liability. You have to file the papers for the corporations to receive the revenue and the designation whereas for partnership, no such thing exist. You both owe same amount of the profit without any other share and there is no discrepancy in the system of running the partnership business. The record keeping is easier with the simple structure of partnership unlike the S Corporation. The agreement for the partnership business helps you getting rid of the taxes problem in the future so that no problem comes along. You will not fall into the trap of tax problems or the tax resolutions in future which can create the complicated situations.
Asset Protection:
There is no separation in the partnership which comes under the legal partners or the company. If there is a debt on the company then the assets of both partners will be compromised to pay off the debt. Whereas, when it is about the S Corporation, everyone has to bear the cost of paying the debt who is involved as a stakeholder of the company. The owner financial conditions is not given to the partners according to the court so you do not have worry about your assets when it is the time of S corporation paying off debt.
Taxation:
Taxation is a big issue when it comes to S Corporation and Partnerships business, both get the access to the taxes profit. Both businesses have to file the taxes just like every business has to and do the accounting for the inflow and outflow of the cash. The businesses have to file the taxes on the legal papers with getting the returns for everyone in the organization. Whoever has the stake in the company, will get the tax return with the double taxation. The same tax will be incorporate with the shareholders when you are filing the taxes.
Taxes of Employment:
The partners in the income tax has to pay off the taxes and both will receive the profit equally. The limited partners who do not get in touch on the daily operations of the company will not share the income on the employments tax. The reasonable wage in the S Corporation is due for the ones who are in the daily operations of the organization and meet the standards of the company along with knowing the expenses of it. The shareholders however will have the impact passively over the taxes of employment. When the income is known by everyone under the S Corporation, there are enough wages which can be paid with showing the profit at the end as well. The calculations of the limits over the deductions of the taxes are paid with the differences of the ownership which is able to get into different levels.
Ownership and the Taxes work different for both types of the businesses where the S Corporation has the limit to avoid the taxations for the income and along with the deductions the partners as well. The company’s owner has the value holding for the organization along with passing it to the heirs if they want. The tax reporting system works the same for the organizations for S Corporation and partnerships. You are not able to make the deductions on the individual basis but it will be made overall from the organization.
So before you make the decision of choosing which type of business you want to own, make sure you do your homework and then select the best option for yourself.
Allen Kemper