Deciding On Your Business Structure In Arizona

Choosing the Best Ownership Structure for Your Business

Deciding on the right business structure is a crucial first step. It can affect your personal liabilities and tax duties to the state and the federal government. Speak with an Arizona business attorney or accountant about your particular situation, since local laws could influence your decision. Here are the most common types of business ownership structures:

  1. Sole Proprietorship is the easiest business structure to set up and best for individuals running their businesses. There will be fewer regulations and paperwork under this business type. The owner is liable for all debts and obligations. Furthermore, personal assets can be used to pay off business debts. 
  2. Partnership applies to businesses with two or more owners. Each partner is individually liable for the debts and duties of the business, and equally in its profits and losses. It may be a limited partnership or a general partnership.
  3. Limited Liability Company (LLC) is a hybrid structure that offers both the operational flexibility of a partnership and limited liability features and tax benefits of a corporation. LLC owners, known as members, aren’t accountable for the company’s debts or liabilities of the company. Arizona LLCs are required to pay annual report fees to the Arizona Corporation Commission.
  4. Corporation is a legal entity that shields its owners from most of the company’s liabilities. The formation of corporations can be more difficult, and they are subject to further regulations and tax requirements. Corporations can be classified as S-Corps, C-Corps, or B-Corps, with each having unique tax liabilities and obligations.
  5. Nonprofit Corporations are organizations that prioritize mutual or public good over profit-making. They qualify for tax-exempt status, which exempts them from paying state or federal taxes on any profits they generate.

Advantages of an LLC in Arizona

A Limited Liability Company (LLC) is a popular choice for Arizona business owners because of the distinct features that provide plenty of benefits:

  1. Limited Liability
  2. Flexible Management and Ownership Structure
  3. Pass-through Taxation
  4. Fewer Administrative Duties
  5. Easy Establishment
  6. Flexible Profit Distribution
  7. Credibility
  8. Perpetual Existence

Speak with a consultant, attorney, or CPA to decide on what’s best for your business.

Applying for Arizona Business Tax ID

If you’re starting a business in Arizona, you’ll need to apply for the appropriate tax identification numbers, licenses or permits for both federal and state taxes.

Federal Tax ID (EIN):

  • Employer Identification Number (EIN) is a number assigned by the Internal Revenue Service (IRS). It is necessary for almost all types of businesses, particularly if you want to recruit staff or establish a corporation or partnership. Register online for free at the IRS website. Your EIN will be issued right away.

State of Arizona Tax ID:

  • Arizona Joint Tax Application (JT-1) allows you to register for transaction privilege tax, use tax, and employer withholding and unemployment insurance. Register online through the Arizona Department of Revenue’s AZTaxes website.

Other Requirements:

  1. Business Licenses
  2. Unemployment Insurance Tax
  3. Employee Withholding Tax 

Remember, requirements may vary based on the specifics of your business. Consult with a tax professional or business advisor to ensure you’ve complied with all the requirements for your business.