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Mississippi’s Capital Preservation Services, a marketing and tax planning company, works primarily with physicians and attorneys. Capital Preservation Services provides custom tax planning services to business owners to help reduce their tax liability.
For businesses, navigating taxes is complicated, especially since tax liability changes depending on the type of business. Here is a brief overview of three of the common business entities and how they are taxed:
- Sole proprietorship. In the eyes of the IRS, sole proprietorships are not separate entities from the business owners. While this grants owners entitlement to all profits, they are also responsible for all losses and debts. Income and losses from sole proprietorships are listed as the owner’s income on their taxes, and owners must pay estimated and self-employment taxes.
- Partnership. Two or more people who share ownership of a business and its profits and losses are involved in a partnership. Similar to sole proprietorships, partnerships and their owners are seen as the same entity, so the company is not taxed separately by the federal government. The owners are taxed on the income they receive from the partnership.
- Limited liability company (LLC). While state laws generally see LLCs and their owners as separate legal entities, the federal government does not. This means they are treated like partnerships unless the company elects to be treated as a corporation.
C corporation. Also known as a regular corporation, C corporations are taxed as the corporate level according to corporate income taxes. The entity must pay tax on its income according to federal tax laws, and the owners or shareholders who receive dividends from this income must report this money on their personal taxes and pay income tax on it.