Start-up businesses should always consider their choice of entity when planning their new venture. Whether it is a sole-proprietorship, joint venture, LLC, C-Corp, S-Corp or partnership, there are many tax considerations flowing from the entity choice. Entity choice can impact method of accounting, capitalization vs. expense and income recognition, among other tax considerations.
As you create your business plan each decision you make will impact your tax planning opportunities, consider the following:
- Think about the type business and industry you will be in.
- What will your revenue stream look like?
- How do you want to grow your business?
- What will be your management structure?
- What is your exit strategy?
Create a plan that covers 3 to 5 years. Consider short-term, mid-term and long term strategies as you put the plan together. Whether you are in for the short term or the long hall, an exit strategy is essential. It should anticipate a potential sale of the business or transition to family or employees.
If you have already chosen a business entity, a careful consideration of the list above might be helpful in identifying areas of the business that need adjustment. Complexities in tax legislation can be used to your advantage only if the objectives of the business and the entity type are in line.