How to Choose the Right Business Structure for Tax Benefits

cpa tax planning professionals, business structure
July 11, 2024

When you are first starting a business, tax planning strategies should be a cornerstone of all your foundational decisions. Business accounting is a lifelong venture. However, business tax planning should be a fixture in all your decisions going forward, especially when it comes to how to structure your new venture. 

An accounting business services professional should be one of your critical resources from the start. Even though most new start-ups don’t have the funds to hire an expert accounting team in-house, seeking out accounting services for small businesses is an ideal way to have unlimited planning and compliance expertise while staying within a tight budget. 

The tax planning services experts at Waters Hardy can help you with every step of the lifespan of your business. Our financial experts can help you with business accounts from the get-go to structure your business to maximize your tax benefits years down the road. From your first transaction to the next waves of success when it’s time to expand, our tax planning services grow with your company so that you’ll have adept and money-saving guidance every step of the way. 

In the meantime, before you launch your company, consider how the right business structure can provide years of financial benefits. 

What is a Business Structure? 

When you first launch a new business, one of your first decisions is what form of business entity to establish. 

Your type of business structure determines several things in the tax realm. These include what type of income tax return form you have to file, how you will calculate your tax liabilities, and potential tax planning and compliance strategies to ensure accuracy of your business accounting efforts. 

Why is it Important to Choose the Right Business Structure? 

There are several reasons to make a wise and strategic decision when it comes to determining your business structure, which includes the following: 

  • Taxes – The type of business entity you choose will determine if you are subject to one or two levels of tax, as well as your tax rate. 
  • Protection of your assets – Some business structures offer protection for your personal assets if there is a future liability, like a lawsuit. 
  • Better ability to acquire funding – Business entities that can issue stocks or other equities can be useful when securing funding to grow. 
  • Growing credit – Setting up your business as a separate business entity may allow you to establish credit for your company that is separate from your personal credit accounts. 
  • Minimizing paperwork – Some business structures are inherently more complicated and require more paperwork and red tape, especially regarding taxes. 

Types of Business Structures 

As stated, there are several business structures to consider, but four of the most common are as follows. 

Sole proprietorship 

A sole proprietorship is easily one of the most common types of business structures. This is especially true for small businesses, which the IRS defines as “someone who owns an unincorporated business by themselves.” A sole proprietor is responsible for reporting income, gains, losses, credits, deductions, and other routine tax situations within the business. Therefore, they typically pay taxes related to the business as part of their individual and annual income tax return.  

Sole proprietorships are most common with freelancers and start-ups or businesses that are just starting to come to fruition. (Remember that if your venture begins as a sole proprietorship, you can always change your business structure in the future.)  

A sole proprietorship is the easiest to set up, but the owner is solely responsible for all of the company’s debts and liabilities, which puts their personal assets – like their home – at risk.  


If you launch a new company with one or several other people, then you’ll likely start as a partnership.  

There are also different types of partnerships when it comes to business structures. For example, a general partnership is designed for companies with one or more active partners and is one of the easiest to start and maintain. 

 A limited partnership is better suited for partners with an investment or interest in a business who want to avoid personal liability outside the business alone. A business tax planning expert like Waters Hardy can help you navigate these situations and determine the right partnership for you and your team. 

Limited liability company (LLC) 

A Limited liability company or LLC is a type of business structure where the members of the company are not personally liable for the company’s debts or liabilities beyond the company members’ investment in the business. An LLC offers some benefits of a corporate structure, such as protecting the business owner’s assets, and can be less complex to set up than other structures, such as S and C corporations. 

However, an LLC might not offer solid protection for the business owner who does not diligently keep their business and personal finances separate, and extra self-employment taxes and income taxes may also come into play. 


Corporations refer to a company or a group of people authorized to act as a single legal entity when it comes to a business. The company is, therefore, separate and distinct from the individual owners (so there is no personal liability). However, the corporation can effectively act as a “legal person” and enter contracts, conduct transactions, etc. There are different types of corporations, such as S corporations or C corporations, and the exact business structure will highly depend on the backbone of your business.  

Corporations can be complex to set up and maintain but can offer hefty tax benefits. Therefore, they can easily be handled by a tax planning services provider with ample expertise in business accounting. 

What Business Structure is Right for Your Company?  

Choosing the right business structure for tax benefits is a crucial decision that can significantly impact your company’s financial health. At Waters Hardy, we are dedicated to helping you navigate this complex process with ease and expertise.  

Reach out to our team today to discuss your options, overcome potential hurdles, and explore new opportunities for growth.  

With our expert guidance, you can confidently launch or expand your venture, ensuring that your financial strategies align with your long-term goals.  

Contact us today!  

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