Choosing the Best Tax Entity for a Small Business Essay

Choosing the Best Tax Entity for a Small Business - Essay Example For this reason, the article recommends this type of entity to first time business owners. On the negative side, however, sole proprietorships face "unlimited personal liability" and "15.3% self-employment tax on all earnings up to $80,400." If the business is legally risky, the personal liability issue is a major obstacle. A general partnership, on the other hand, is characterized by Anthony as "a good way to participate in a venture with other individuals without having to deal with payroll issues." The partners also have great freedom in the distribution of profits amongst themselves as long as a consensus is reached. Nevertheless, this entity shares the problem of self-employment tax with sole proprietorships, and all partners can be held liable for the actions of the others. The central benefit of an S corporation is that there is "no Social Security or Medicare taxes on profits or dividends from the corporation to shareholders." However, the business owners' benefits are not deductible. In a C corporation, on the other hand, all health insurance is deductible, and there is access to a lower tax rate for profits kept in the corporation.