When starting a new business, expanding or contemplating bringing on additional investors, careful consideration must be given to how the business is legally structured. Entity selection affects your current and future operations and tax strategy, with significant tax implications from a federal, state and international perspective. It can also play a role in future liquidity events.
Smith and Howard’s tax professionals focus on the “and” in our approach to recommendations on entity selection: an entity selection that provides the most tax efficient approach and an acceptable level of liability protection and one that meets your business objectives. Business may be conducted as a C-corporation, S-corporation, general or limited partnership, limited liability company (LLC) or sole proprietorship.
Factors that we consider when advising businesses on entity selection include:
- Current and anticipated future income tax rates
- The projected spread between corporate and individual tax rates
- Potential built-in gains for S-corporations
- Projected distributions and double tax considerations
- Future plans for outside investors and raising capital
- Desired special allocations of income to investors
- Maximum use of business losses and shareholder tax basis
- 1202 Stock gain exclusion opportunities for eligible C-corporations
- Self-employment tax considerations
- Flexibility to convert to a different entity structure as needs change
- State tax consequences
- International considerations
The tax team at Smith and Howard is available to assist with a customized approach to entity selection not only for the tax implications but also to help you achieve your long-term business objectives.