It’s tax season, and now is the time that many businesses look over their deductions. Small businesses owners are often affected personally by the success, or failure, of their business. For those who are on the verge of passing the Utah State Licensing exam, the type of business you form now will affect you next tax season.

Contractors are faced with many different business options. They can be sole proprietors, they can form a partnership, or they can create a corporation. Each of these business types has pros and cons when it comes to taxes.

Sole proprietorship is one of the most common small business types. Many sole proprietors don’t apply a tax ID number; they use their social security numbers when they file taxes. They enter their information on a schedule C, as a part of their 1099 tax return. Depending on the number of deductions individuals can claim for their business and personal lives, people can end up owing money to the state and federal governments.

Partnerships can also affect personal tax statements at the end of the years. In partnerships and sole proprietorships, the money contractors take personally isn’t considered a paycheck, so the normal payroll taxes don’t apply. This means that individuals are responsible for making sure that the government receives their fair share of their income.

Individuals are also personally responsible for any business expenses and liabilities. If a sole proprietor is sued, plaintiffs can attack personal as well as business assets. Many contractors live with the fear that a lawsuit will destroy them personally, even with insurance.

In order to protect personal assets, and to gain certain tax advantages, many Utah contractors form corporations. There are different options that small businesses can avail themselves for corporations: limited liability, Chapter S, and C Corporation.

A limited liability corporation (LLC) is one that is popular for small businesses. It is a scenario contractors consider the best of both worlds, as it shares the benefits of a corporation and a sole proprietorship/partnership. A Chapter S corporation is beneficial as long as the company doesn’t show a profit. Moreover, a C corporation is possible, even if the small business has few or no employees. UTCLC helps contractors who have passed their state licensing exam create the type of business they want to form as Utah general contractors. We can help we review the advantages and disadvantages of each choice, and complete the paperwork required to form the type of business you choose. Contact us today to find out how we can help you pass your state licensing exam and assist you with company setup.