A variety of business entities can be availed of to conduct a business. Choosing the best generally entails a two-tier analysis. First, the type of state law format or entity must be selected, from among a proprietorship or division, partnership, limited liability company, corporation, or trust. Both income and nonincome tax considerations play a role in that choice. Second, assuming a particular state law format or entity, then its income tax classifi cation must be determined. Obviously, that determination is based solely or almost entirely on income tax considerations.
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This article first appeared in Taxes, May 2007.
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