The Building Blocks for a Start-Up Business

There are so many exciting things to do when starting a business - picking a name, designing a logo, creating a website, etc. Who wants to think about taxes or a business structure? Although this might not be the most exciting piece of your start-up, if you don't take time to consider these details, you could find yourself regretting them for years to come. Let's look at three areas that can impact your business today and into the future.  

Business Structure

If you were going to build a building, you would not do it without making sure you were building on a strong foundation. The same concept applies to starting a business, and your foundation is the business structure you choose. There are many ways a business can be structured. For example, if you are the sole owner of your business, you can operate as a sole proprietor, a Limited Liability Company (LLC), or a corporation. The only thing you can't do is form a partnership. Partnerships require at least two owners. Each business entity has its advantages and disadvantages, including the following highlights:

Sole Proprietorships

Partnerships

Partnerships operate in the same manner as sole proprietorships. The business and its partners are considered to be the same for tax and liability purposes. All profits are passed through to the partners who report them as income and pay taxes. Partnerships like sole proprietorships do not protect the partners' personal assets.

Limited Liability Company

LLCs require legal filing to receive the benefits of separating the business from personal assets. This separation is one of the primary benefits of an LLC, as opposed to a sole proprietorship or partnership. The company does not pay taxes. All profits appear on the owners' personal returns. An LLC can choose to be taxed as a sole proprietorship, a partnership, or an S corporation.

S Corporations

As an incorporated business entity, S corporations are separate from their shareholders. However, they do not pay taxes. All profits are passed through to the shareholders. Shareholders report the income on their tax returns.

C Corporations

C corporations are separate entities for legal and tax purposes. The Corporation’s assets are separate from the assets of those owning the Corporation. C corporations are tax-paying entities. In addition, shareholders pay taxes on any dividends that are received, resulting in what is commonly referred to as double taxation of the income. Hand in hand with the decision of how to structure your business comes the various taxes that apply. As you decide what type of business entity is right for your start-up, be sure to consider taxes.  

Taxes

All for-profit businesses pay federal income tax at some level, whether it be corporate or individual. Some companies also pay state and local taxes. In addition to income taxes, businesses may pay some or all of the following:

Payroll Taxes

Although payroll taxes such as Social Security and Medicare are taken out of an employee's paycheck, the employer also pays a percentage based on the gross pay of the employee. In addition to FICA taxes, employers pay federal and state unemployment.

Sales Taxes

Not every state has a sales tax. For those that do, you must make sure you are collecting and paying the required sales tax. That includes products sold online.

Personal Property Taxes

If your business owns tangible, depreciable property, such as equipment, you may have to pay personal property taxes. These are based on a percentage of the assessed value of the property.

Self-Employment Taxes

In sole proprietorships and partnerships, business owners are not employees and do not receive a paycheck. That means Social Security, Medicare, and income tax are not withheld. To cover Social Security and Medicare, business owners pay a tax based on the business' profits. Owners also may pay an estimated income tax every quarter to compensate for no income tax being withheld.

Other Taxes

Some states may impose a gross receipts tax instead of a sales tax. Franchise taxes can apply based on the value of the company.  Excise taxes may be applied if certain types of resources, such as fuel, are used. Your business structure has a direct impact on the amount of tax you pay. Take the time to evaluate which structure is best for the way your business will operate.  

Technology 

• Project management software can help you set and maintain schedules.
• Customer relationship management (CRM) packages can help you acquire and retain information about your customers.
• Marketing automation can work with a CRM package to deliver email campaigns while you sleep.