What Type of Entity Should Your Business Be?


What Type of Entity Should Your Business Be? image

What Type of Entity Should Your Business Be?

When determining which business form best suits the needs of the owners, many factors need to be considered. These include both tax and nontax factors. The goal in choosing a business form is to structure it so the form meets the taxpayers nontax objectives, while maximizing any current and future tax benefits.

Options to Consider:

Type of Entity — Tax Advantages VS. Disadvantages

Sole Proprietorship


  • One layer of taxation
  • QBI deduction
  • Filing simplicity—Schedule C is included with Form 1040
  • Net income subject to self-employment (SE) tax

General & Limited Partnership


  • One layer of taxation
  • QBI deduction
  • Flexibility in allocation of income, gains, losses, and so on
  • Distributive share of limited partners not subject to SE tax
  • Partnership taxation is highly complex
  • Distributive share of general partners subject to SE tax



  • One layer of taxation
  • QBI deduction
  • Net income not subject to SE tax
  • Strict qualification requirements: number of shareholders, type of shareholders, only one class of stock
  • Profits must be allocated to shareholders based on percentage of ownership



  • 21% flat tax rate
  • Ability to deduct fringe benefits
  • Double taxation
  • Capital gain and loss treatment
  • Net operating loss (NOL) can only be offset against corporate income

Limited Liability Company


  • Allowed to use default tax classification (disregarded entity or partnership) or elect to be taxed as a corporation (C or S)
  • More exposure to SE tax if entity does not elect to be taxed as a corporation

Let HiAccounting help you navigate this important decision!

Liability protection, tax reporting, and government compliance are all key pillars of your business foundation. HiAccounting can help make sure these pillars are strategically aligned with the needs of your business and its owners. With a solid foundation, you and your business will be able to focus on the operations of the industry you know inside-and-out. Leave the taxes to us!

Give our Tax Experts a call at 808.529.9990.

Get In Touch

HiAccounting would be pleased to get in touch to discuss your accounting needs.

Maui Office

24 N Church Street
Wailuku, HI 96793
Phone 808.356.4357

Oahu Office

700 Bishop St. Suite 600
Honolulu, Hi 96813
Phone 808.529.9990

Office Hours

Monday - Friday
8:00am - 5:00pm
Closed on Holidays
AccountingToday Best Accounting Firms to Work For 2020
Hawaii Business Top 250 2011-2021
Hawaii Business Best Places to work 2011-2023
BBB Torch Awards for Ethics