Houston residents who are eager to open their own businesses must do their homework to determine the most advantageous organizational structures to fit their circumstances. In most cases, that will be some type of incorporation.
Common options are “C” corps and “S” corps. Let’s examine what those structures can mean for Texas business owners.
What is a “C” corp?
“C” corps can have a looser business format, with unlimited numbers of shareholders, some of whom may not be United States citizens.
The trade-off with a C-corp is that the owners must file business tax returns on all revenue generated, including that which is claimed on personal income tax returns. Updated regulations have capped the tax rate for C-corps at 21%. The good news is that a company’s tax burden can often be offset by their charitable donations and by providing their employees with health care coverage.
So, what is an “S” corp?
S-corps limit the number of shareholders to 100. Additionally, all the shareholders are required to be citizens of the United States. These business entities also have no corporate taxes to file and instead, owners benefit from pass-through filing.
This allows them to show the companies’ profits and losses on their personal tax returns. They can even deduct as much as 20% of the revenue from the business on their individual tax returns.
Which is the right choice for your Texas business?
Because there are many factors that can make one organizational structure more viable for your business than the other options, it is always prudent to see the counsel of a legal advocate with experience in business formation here in Texas.