Small business owners often think about ways to grow their existing business and branch out to have more reach and more results. That’s why so many business owners open up multiple locations for their main business or start up a second or third sideline business related to their main business.
Of course, owning multiple businesses and managing multiple business locations can involve many financial decisions. And you want to do it right, so you enjoy the maximum financial benefits while minimizing your tax liabilities. For that reason, it makes a lot of sense to select the right small business tax structure and employ the best tax strategies for the businesses you own.
Multiple business ownership involves some additional planning, but when you do it wisely, you’ll see many advantages while also ensuring you’re saving time, money, and effort in the management of your businesses. Here are some key questions and tips to keep in mind concerning small business tax structure if you own multiple businesses in Oklahoma.
What small business tax structure should you use for multiple businesses?
There are several legal tax structures you can choose from when setting up your multiple small businesses for success. Here’s an overview of each to consider as you decide what small business tax structure is right for your situation.
1. Create an individual corporation or LLC for each business.
One popular approach to having several businesses is to treat each as its own separate entity. In this approach, you separately incorporate each business you have.
Advantages:
- This is a great option if each of your businesses doesn’t overlap the others — for example, if you have a landscaping business and also a jewelry-making business.
- It’s also helpful to keep businesses separate if one or more of your ventures is particularly risky, such as real estate investments. The separation will limit your liability — for example, if your landscaping business is sued, the risk extends only to that business, not your jewelry-making business.
Things to keep in mind:
- This approach requires a lot of paperwork, because you’ll have to file incorporation papers, annual reports, meeting minutes, taxes, and other documents for each entity.
- You’ll pay fees for each entity to the state, which can get pricey.
- The added administrative work will increase the time and money you expend on your businesses.
2. Create one LLC or corporation, then use DBAs for each business underneath it.
In essence, you’re creating an umbrella corporation when you take this approach. Your Oklahoma small businesses can each have their own unique name (a “doing business as” fictitious name) while still being underneath one organization.
Advantages:
- This simplifies your paperwork — especially taxes, which can all be filed under one tax return for the main holding company that you’ve created.
- You’ll only be paying incorporation fees for one company, even if you have several DBAs.
- By creating DBAs, you can use individualized branding and marketing for each business.
Things to keep in mind:
- This approach can work if each of your DBAs is doing business in the same state (and/or city and/or county). But if they’re doing business in different states or municipalities, you may need a different approach.
- Each DBA will have legal protection underneath the main holding company — which means that if one DBA is sued, all your DBAs could be held liable or have their assets exposed to risk.
- Before taking this approach, be sure to consult a small business tax accountant or attorney for their advice on your specific situation.
3. Create an umbrella corporation, then create secondary corporations (aka subsidiaries) underneath it.
Instead of creating fictitious business names (DBAs), you can incorporate each of your businesses under a main holding company.
Advantages:
- This approach to handling multiple businesses is especially useful if you are looking to sell part or all of what you own to a larger business (an acquisition).
- If you have an established business that you’d like to have fund a new business venture, this approach may be useful.
Things to keep in mind:
- This approach is highly complex, involving a lot of moving parts. It will therefore involve quite a bit of time, planning, and costs to do it legally and safely.
- To ensure this is the right approach for you, and that it is executed to your advantage, you should consult with an attorney and/or tax expert.
Consult with experts for the finer points
When making decisions that affect your legal liability, taxes, and other aspects of your business, it is helpful to consult with experts on Oklahoma small businesses. It’s a good idea to talk with a small business attorney as well as an experienced small business tax preparer to get their insights.
Among the questions you might ask an attorney and/or tax accountant to help you with:
- Which type of business entity should I form — an LLC (limited liability company), DBA (fictitious “doing business as” name), a corporation, or a partnership?
- How can I ensure my business name is available in my state before I start using it?
- What do I need to do (paperwork, fees, etc.) to establish my business(es) in my state?
- How do I obtain a federal employer identification number (EIN)? Do I need separate EINs for each of my businesses?
- If I decide to change the structure of my business(es) in the future — such as changing a DBA to an LLC — how will that affect my business?
- What tips can you offer for avoiding common small business tax mistakes?
Save Time and Money with Professional Tax Help
One of the best ways to ensure you’re enjoying the financial benefits of small business ownership and maximizing your tax decisions is to partner with a bookkeeping and tax services company that specializes in small local businesses like yours.
At Shockley Bookkeeping, we have over 50 years of combined experience in helping Oklahoma small businesses make smart financial decisions and file taxes accurately and on time. See our small business tax services, and contact us today for a free quote and consultation to find out how to best structure your multiple businesses for your specific situation.