With the recent passage of the Tax Cuts and Jobs Act small business owners can now obtain a 20% deduction for the business income.
Common types of pass through entities include the Limited Liability Company, Subchapter “S” Corporation, and Professional Corporation.
Other considerations and advantages for establishing a business entity include:
- Creditor and Liability Protection;
- Declaring bankruptcy for the business;
- Raising capital and debt financing;
- More organized and efficient management and control for adding partners, members, shareholders, or interested parties;
- Tax optionality and planning opportunities;
- Credibility as legitimate and thriving business enterprise;
- Privacy and Anonymity;
- Dissolution and wind up of the business.
It is ill-advised to enter into an informal business arrangement with two or more members or interested parties, only to confront the inevitable complications regarding legal, regulatory, and tax compliance, profit sharing, management, and control.