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The tax implications of business structures in Georgia

When starting a business in Atlanta, owners have several structures to choose from, such as the following: 

  •        Sole proprietorship
  •        Partnership
  •        Limited liability corporation
  •        Corporation
  •        S Corporation

As the U.S. Small Business Administration points out, there are certain federal tax forms businesses will have to file depending on their structure. A business could be held responsible for paying income, excise and self-employment taxes in addition to other taxes for employers.

For example, the Internal Revenue Service notes that in a sole proprietorship, the business and owner are legally the same. Therefore, the owner is held responsible for taxes and could have to pay income tax, self-employment tax, withholdings for Social Security and Medicare and excise tax, among other items. Partnerships and LLCs work similarly on the federal level in that the individuals involved, not the business, are typically taxed at their own rate.

Corporations will incur corporate income tax, but S corporations are not because its owners have filed an election with the IRS that means the business will be treated like a partnership for tax purposes.

On the state level, Georgia handles matters slightly differently. The Department of Revenue states that corporations will have to pay a corporate income tax. When it comes to S-corporations, the shareholders will pay a corporate tax, not the business itself. Georgia also requires corporations to pay a net worth tax.

There are a number of other rules and specifications for each business structure. Anyone starting a business should have a firm understanding of the tax forms that must be filed at the state and federal levels as well as what effect those taxes could have on the bottom line.

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