Deciding to start a business means asking yourself a lot of questions: What service or product will you sell? Where will your business set up operation? Can you run a home-based business? Will you need a brick and mortar set up to be successful? What business structure will be most beneficial to your company?

Choosing the best structure for your business can have a tremendous impact on more than just paperwork; it can affect potential profits and tax obligations in the future.

No one wants to pay more in taxes than necessary, and the key to ensuring that doesn’t happen is a solid understanding of your company’s annual earnings and spending.

Both sole proprietorships and LLC have pros and cons, depending on your setup. If considering between going solo or limiting your liability, either choice can affect not only how you pay your taxes but how much you have to hand over to the IRS.


A sole proprietorship structure is often ideal for someone who:

  • Isn’t overly concerned about the liability associated with their business or work, or worried about being financially linked to their business;
  • Is in the early stages and still testing the waters to see if they have what it takes to become a successful entrepreneur;
  • Isn’t making a significant profit yet;
  • Is looking for an easy setup and wants to keep things as simple as possible.



LLCs offer separation between the business entity and the owner-operator, protecting your assets in the event of a lawsuit or when financial obligations are unable to be met. Another great thing about LLCs — the limited liability doesn’t come with a ton of extra paperwork.

LLCs are often perfect business solutions for someone who is:

  • Interested in the increased security of separating personal assets and business liabilities;
  • Looking for additional tax benefits;


There are a few hurdles that should be taken into account when considering setting up your business as an LLC:

  • Certain states require LLCs to pay property taxes;
  • Assets need to be tracked more formally via a double-entry accounting solution.

No one enjoys penalties, losses, or other surprises — but they can be especially challenging when you’re operating a small business. And, when it comes to business structure, there’s is no ‘one-size-fits-all’ approach. Your business is unique and will require solutions explicitly designed to help it reach your targeted goals.

It’s worth taking some time early on to consider how different structures can affect your business. Ensuring you can meet all of your IRS obligations no matter what structure you decide to use, will put you in a strong position for positive growth.

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