The payment of taxes is not a strange thing in the world today.

However, for an average individual, paying taxes can be difficult. So, selecting the type of business structure is of the essence now more than ever.

Depending on your choice of business structure, you may lessen or heighten your net taxation. It is in light of this that today’s article is timely.

We will be considering the best structures of business you can choose to aid you pay the lowest taxes. Come along.

But first, why does it matter how you set up your business, you might wonder?

Why It’s Important To Set Up Your Business Structure

Most self-employed and small business owners might care little about their business structure. But, selecting a business entity can be annoying, as it is expensive to register with the state.

However, it doesn’t matter if you’re earning little bucks from a different business or a side hustle; tax payments can hugely impact you or your business.

Therefore, the way you set up your business is vital as it can assist in limiting your tax liability. If you set up the perfect business entity, you can save up to 40% on your taxes annually.

So, what business structure is best for cutting your net taxation?

Best Business Structure To Help Cut Down Taxes

Of course, you guessed it. Large corporations are the best at cutting down taxes. But most people aren’t that big yet or are self-employed, and so do not enjoy such benefits.

Freelancers (including small business owners) are a rising number in the society of today, and just cause they are self-employed doesn’t mean that taxes elude them. They must pay self-employment taxes as well.

Small business owners pay taxes as both the employer and the employee, making their payments to Medicare and Social Security double. If you fall under this category, you would agree that it can be burdensome.

However, there are other business entities small business owners can opt for and cut on their annual tax payments. Let’s consider some of them:

1. LLC (Limited Liability Company)

LLC, short for Limited Liability Company, is another business structure with a certain degree of flexibility. For example, owners of an LLC can file as sole proprietors or as a partnership.

An LLC does not pay federal revenue taxes. Instead, the owners will account for the losses and revenues on their individual federal tax profits.

However, some states demand a yearly tax on LLCs. Some States have as low as a $35 annual tax, while others have as high as an $800 annual tax.

One primary advantage of having an LLC is that it provides asset protection. Eventually, while running your business, you will get sued, and setting your business up as an LLC will lessen the possibility of you getting sued personally.

In addition, if you set up your business as an LLC and you get sued and lose, your accounts are safe, as the victor can only go after the corporation’s money.  LLCs are best for business professionals and property owners. You can start an LLC with online services such as Swyft Filings or In file for almost free for the first year.

2. S-Corporation

One of the main reasons why people set up a corporate entity is taxation.

S corporations generally do not need to pay taxes on their corporate revenue. All profits generated from the corporation flow to the owners.

The legal responsibility of tax payments is also a pass for an S-corporation as the corporation does not have to pay taxes on company returns. Owners of S-corporations can pay taxes from their own tax returns.

Consultants, financial planners, and doctors are examples of individuals that can set up an S-corporation.

3. C-Corporation

Most companies or businesses looking to go public adopt the C-corporation business structure.

With a C-corporation, the company gets taxed differently from its shareholders. Unlike S-corporations, whose maximum number of shareholders is limited to 100, C-corporations do not have a limit on the number of shareholders in the business.

The drawback of running a c-corporation is its double taxation. First, the company gets taxed on its dividends. And the shareholders are also taxed after the company’s revenue has been distributed as income.

Generally, the tax rate for freelancers and small business owners is 29%, but with a C-corporation, the effective tax rate is 21% and is therefore worth considering, especially for new businesses.

In addition, the shareholders of new companies get to sell their stock 5 years after the company’s inception, with an initial $5 million of profit tax-free.

Large corporations and startups are best for setting up a C-corporation.

In summary, while tax payments can be quite a hassle, especially for small business owners, some business structures can aid you to have a cut down on your tax payment. By setting up your business as an S-corporation, a C-corporation, or an LLC, you will surely see a decrease in your net taxation.

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