A business is defined in the Merriam Webster’s Collegiate Dictionary Tenth Addition as a commercial body or corporation organized for the commercial advantage of its owners, operators, stockholders or partners. A business is usually defined as any entity organized for the purpose, directly or indirectly, of making a profit. For example, a privately owned shopping mall is a business. A public corporation is not a business, even though it may be publicly traded and regulated by a government entity. A privately owned business may also be a corporation, but the operation of the business will be determined by the owners rather than by the state.
A business can include a partnership or an unincorporated association. Partnerships are considered to be a partnership when one person controls or is responsible for the management of the partnership, but does not necessarily control or be the manager of each and every asset and liability of the partnership. Unincorporated associations are considered to be a corporation when there is no real property or personal property transferred to or ownership established by the partnership, but there is a board of directors governing the operation of the business. There are basically three types of corporations: C corporations, D corporations, and C-corporations.
The tax structure of most businesses is a C corporation. In a C corporation, there are limited liability privileges and joint or two personorship taxation. The income is only taxed once, through the individual’s or joint tax return. Income, deductions, and credits are not available for corporations. A limited liability company is a form of business structure which offers some advantages over corporations but comes with many disadvantages. The main disadvantage of a limited liability company is that it cannot accumulate stock or debt and receives no corporate tax benefits.
The next form of business structure is a D corporation. In a D corporation, there are only limited partnerships and pass-through income. Income is taxed twice, once as a straight income tax through the individual or partnership tax return and once through the corporation’s income, gain, loss, and dividends. Income, gain, and dividends received by the corporations are taxed separately from the salaries of the owners. A limited liability company can only issue shares and can have no other company affairs other than its business operations.
The last main type of business organization is the sole proprietorship. A sole proprietorship is a legal entity that exists by itself and has no employees. It is treated just like a sole physical property, and all activities related to the business activities of the owner are exempt from tax. Some of the major tax benefits of being a sole proprietorship are exemption from inheritance tax and Self-Directed IRA and also from capital gains tax.
Many business owners use their vehicles for business purposes, in addition to their own personal use. The IRS will often consider them when calculating taxes for car usage. When it comes to partnerships, the IRS will typically treat them as a form of a partnership for tax purposes, even if they have no employees, just like any other employee. One benefit of a partnership is that partners are usually treated as an entity separate from their interests, but they are still entitled to their own benefits and liability insurance. There are many other ways to avoid the double taxation of income and profits, and there are many business rules on the IRS website that you can check out.