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The 3 main types of businesses in the United States are: "Sole Proprietorship," "Partnership," and "Corporation"
Recently that has changed to 5 types of businesses. Two new types are "S corporation," and "Limited Liability Company (LLC)."
In a Sole Proprietorship, the business is owned and operated by one person. The fees to maintain a Sole Proprietorship are cheaper than the Partnership and Corporation. This type of business is more dangerous however, because if the business is sued in court, all of the personal assets of the business owner is at risk.Income from a sole proprietorship business is reported on the owner's 1040 tax return, and he/she has to fill out schedule C.
In a Partnership, all the partners own a piece of the business. There as separate forms to fill out on the income for the partnership's tax return.Form 1065 US Return of Partnership Income. If a lawsuit is filed against a Partnership, the individual partner's assets are at risk.
In a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. A corporation can also take special deductions. For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders.
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In addition to federal taxes on your business, the state government also taxes your business. For instance if you own a corporation in California. The Franchise Tax Board of California will charge an $800 corporation tax each year. They don't do that for a sole proprietorship or partnership. But you may still have to pay some fees at the local level.
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