Welcome to Part 3 of our 12-part series on how to legally reduce your income tax burden. Here, we describe the five ways you can choose to organize your small business, and then we provide guidance on how to choose the best business entity for your business in the current environment.

Here’s a common scenario to get us started. You set up a limited liability company (LLC) or S corporation for your small business, and now you are all set in terms of protecting your personal assets from lawsuits and minimizing your tax burden, right?

Not so fast.

One of the most expensive mistakes small-business owners make is choosing the wrong business entity — the legal/financial structure within which the business operates.

Most business owners start as sole proprietors. Then, as they grow, they establish an LLC to help protect their personal assets from any lawsuits filed against the business. Many of these same business owners make the common mistake of assuming that an LLC allows them to file their taxes as a corporation and use that filing status to save on taxes. The fact is that an LLC is a legal entity, not a tax entity. Operating a sole proprietorship as an LLC won’t save you any money in taxes.

You want a business entity (or more than one business entity) that not only provides legal protection, but also maximizes your Continue reading… Continue reading… Continue reading…