Starting a business comes with a long list of decisions. Choosing a business entity is one of the earliest, and it can affect your taxes, your personal liability, how you pay yourself, and how easily you can bring in partners or sell later.
Many new owners pick an entity quickly because a form asks for one. But the structure you choose can follow you for years. Changing it later is sometimes possible, though it may come with costs or tax consequences.
Our firm offers tax planning for business start ups, described as "Entity selection guidance designed to align structure, tax strategy, and future growth." This article covers the main entity types and the tax questions to ask before you launch. Rules can change, so check current IRS and Louisiana guidance.
The Main Business Entity Types
Sole Proprietorship
This is the simplest structure. You and the business are the same for tax purposes. Business income is reported on your personal return, and you may owe self-employment tax on profits. There is no legal separation between you and the business.
Partnership
When two or more people own a business together without forming another entity, it may be treated as a partnership. The partnership files its own return, and each partner receives a K-1 showing their share of income.
Limited Liability Company (LLC)
An LLC is created under state law and may help separate business liabilities from personal assets. For federal taxes, a single-member LLC is generally treated like a sole proprietorship by default, and a multi-member LLC like a partnership. An LLC may also elect to be taxed as a corporation, including as an S corporation if eligible.
S Corporation
An S corporation is a tax election, not a separate type of legal entity. Income generally passes through to owners. Owners who work in the business are generally expected to take reasonable compensation as wages. S corporations have eligibility rules, such as limits on the number and type of shareholders and a single class of stock.
C Corporation
A C corporation pays tax at the corporate level. When profits are paid to shareholders as dividends, they may be taxed again at the individual level. Some businesses choose C corporations for reasons like outside investment or reinvesting profits.
Tax Questions to Ask Before Choosing a Business Entity
How Much Profit Do I Expect?
Expected profit can affect which structure makes sense. A business with modest early profits may look different than one expecting strong income from the start.
How Will I Pay Myself?
Owner draws, guaranteed payments, wages, and dividends are each taxed differently. The way you take money out of the business may influence the entity you choose.
Will I Have Partners or Investors?
Some structures make it easier to add owners or raise money. Some investors prefer certain entity types.
Do I Plan to Sell Someday?
If a future sale is part of your plan, the structure may affect how the sale is taxed. Our firm offers planning for business sales and acquisitions "to coordinate timing, structure, and long-term implications."
What About Self-Employment Tax?
Different structures can affect how much of your income is subject to self-employment or payroll taxes. This is a common topic in the LLC vs S corp discussion.
Are There Deductions I Might Qualify For?
Some pass-through business owners may qualify for certain deductions on business income, subject to limits and rules that can change. Ask your CPA what may apply to you.
What Filings and Deadlines Come With Each Option?
Some entities file their own returns, and some elections have deadlines. Missing an election deadline may limit your options for the year.
Louisiana Considerations
Forming an LLC or corporation in Louisiana generally involves registering with the Louisiana Secretary of State. Louisiana also has its own tax rules for different business types. Check current state guidance with your CPA and attorney.
Liability Is Part of the Decision, Too
Entity choice is not only about taxes. Many owners form an LLC or corporation to help separate business risks from personal assets. Our firm offers risk management and asset protection, described as "Identifying, assessing, and reducing potential threats to financial security, business, or health." You can read more in our article on asset protection in Lafayette.
After You Launch
Once the entity is in place, good habits can help:
Separate bank accounts: Keep business and personal money apart.
Clean bookkeeping: Our accounting services are "Structured accounting that brings clarity, order, and rhythm to your financial foundation."
Estimated payments: Plan for taxes as profits come in.
Annual review: Revisit your structure as the business grows. Business tax planning is "Coordinated business tax strategy that supports growth, structure, and long-term vision."
Who We Serve
Morella & Morella works with Builders of Enterprise and Opportunity: Founders, partners, and business owners. Our firm serves "individuals and families whose financial lives have grown in complexity alongside their success," including:
Precision-Driven Professionals: Physicians, attorneys, and highly trained professionals.
Families Seeking Integration: Those wanting unified financial design across disciplines.
Our office is located at 2901 Johnston Street, Suite 401, Lafayette, LA 70503. See our full list of services.
Talk With Us Before You Launch
If you are starting a business and want to think through entity choice, Contact Us to get started, or learn about our unique service models.
For more articles on tax and planning topics, visit our blog.
Frequently Asked Questions
What is the best business entity for taxes?
There is no single answer. The right choice depends on expected profit, how you pay yourself, your plans for partners or a sale, and liability concerns.
What is the difference between an LLC and an S corp?
An LLC is a legal entity formed under state law. An S corporation is a federal tax election. An eligible LLC can elect to be taxed as an S corporation.
When should I switch from an LLC to an S corp?
Some owners consider the election once profits reach a level where payroll tax considerations may matter. Ask your CPA to compare the options.
Can I change my business entity later?
Often yes, but changes may involve costs, filings, and in some cases tax consequences. Planning early can help.
Do I need a CPA to start a business?
It is not required, but a CPA can help you compare entity options, understand filings, and set up bookkeeping from the start.
How do I register an LLC in Louisiana?
LLCs are generally registered with the Louisiana Secretary of State. An attorney or CPA can help with the steps and related tax registrations.
Disclosure: This material is for informational and educational purposes only and does not constitute legal, tax, or investment advice. Please consult appropriate professionals before making decisions. Tax laws are complex and subject to change, and the information provided may not apply to your specific situation. There is no guarantee that any strategy will achieve its objectives. Investing involves risk, including the possible loss of principal. Morella & Morella, LLC ("M&M") is a certified public accounting firm registered with the Louisiana State Board of Certified Public Accountants. Apex Capital Management, LLC ("Apex") with offices in Lafayette, Baton Rouge and Youngsville, Louisiana, is a registered investment advisor registered with the U.S. Securities and Exchange Commission (SEC File No. 117059) and notice-filed in Louisiana and Texas. Registration does not imply a certain level of skill or training. M&M and Apex are affiliated through common ownership but are separate and distinct legal entities. Accounting, tax, attest, and related professional services are provided solely by Morella & Morella, LLC. Investment advisory services are provided solely by Apex Capital Management, LLC. The affiliation between the firms does not make one entity responsible for the services, advice, or obligations of the other.
