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Which Business Structure is Right for Your Bakery?

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One of the first things that you will do to make your bakery a legitimate business is file its business type with the IRS. The IRS recognizes five main types of business structures, and whichever one you choose to file your bakery under determines how you will file your income tax return. When choosing your bakery's business structure, it is important that you research each structure carefully. It might even help you to contact your bakery's accountant or lawyer. For general information about the five types of business structures, read the following:

The 5 Types of Business Structures

  • Sole Proprietorships
    • Owns bakery by his or herself
    • Files taxes with own individual taxes
    • Advantages: Provides independence, flexibility, and minimum legal requirements
    • Disadvantages: High liability, limited investment potential
  • Partnerships
    • Ownership of bakery is between two or more people
    • Taxes are filed on individuals returns and are distributed by investment
    • Advantages: shared overhead, shared responsibility of management and operations
    • Disadvantages: high liability, potential partner conflicts
  • Corporations
    • Bakery is owned by shareholders
    • Taxed at corporate level and then again a shareholder level is dividends were distributed
    • Advantages: limited liability, deductable fringe benefits
    • Disadvantages: double tax, shareholders conflicts, director conflicts
  • S Corporations
    • Bakery is owned by shareholders
    • No income tax paid. Shareholders are taxed.
    • Advantages: limited liability, single tax
    • Disadvantages: restricted filing, cannot deduct fringe benefits, shareholder or director conflicts.
  • Limited Liability Company
    • Individual or multiple member ownership of the bakery
    • Members taxed individually according to investment
    • Advantages: limited liability, flexibility, shared overhead and management and operational responsibilities.
    • Disadvantages: member conflicts, difficulty changing operating agreement or members

Sometimes choosing your bakery's business structure can be slightly confusing and difficult. However, if you research each business structure properly, and talk with your bakery's accountant or lawyer, you should be able to file with the IRS with no problem. If later on down the road, you decide that you would like to change the business structure of your bakery, the IRS does allow you to re-file under a different structure.

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