Entity Selection and Tax Planning for New Businesses in Burbank: 2026 Guide

Introduction

Starting a business in Burbank, California, presents both exciting opportunities and unique challenges. As an entrepreneur, one of the most critical decisions you'll face is selecting the right business entity. The choice you make can significantly affect your tax responsibilities, liability, and financial management going forward. In this updated guide for 2026, we’ll explore the various business entities you can choose from and provide tax planning strategies tailored specifically for Burbank businesses.

Understanding Entity Types

When starting a business, you can choose from several types of legal entities, each with its own tax implications. Here are the most common options for new businesses in Burbank:

1. Sole Proprietorship

• Overview: A sole proprietorship is the simplest form of business entity. If you operate your business alone and don’t register a separate business entity, you are considered a sole proprietor.
• Tax Implications: Business income is reported on your personal tax return (Form 540 for California residents). You’ll pay self-employment taxes on net earnings.
• Liabilities: Unlimited personal liability for debts and obligations of the business.

2. Limited Liability Company (LLC)

• Overview: An LLC is a popular choice for small businesses in California due to its combination of legal protection and tax flexibility.
• Tax Implications: LLCs can choose to be taxed as a sole proprietorship, partnership, or corporation. California requires LLCs to file Form 568 and pay an annual franchise tax.
• Liabilities: Members are generally not personally liable for business debts.

3. S Corporation

• Overview: An S Corporation is a special type of corporation that allows income to pass through to shareholders, avoiding double taxation.
• Tax Implications: File IRS Form 2553 to elect S Corp status. This option may save you money on self-employment taxes.
• Liabilities: Limited personal liability for shareholders.

4. C Corporation

• Overview: A standard corporation is subject to corporate taxation.
• Tax Implications: Profits are taxed at the corporate level and again as dividends to shareholders. File IRS Form 1120.
• Liabilities: Limited personal liability for owners.

5. Partnerships

• Overview: An agreement between two or more parties to manage a business and share its profits.
• Tax Implications: Each partner reports their share of profits on their individual tax returns using IRS Form 1065.
• Liabilities: General partners face unlimited liability; limited partners have liability limited to their investment.

Choosing the Right Entity for Your Business

The right entity for your business will depend on several factors:

• Size and Structure: Consider how you envision your business growing. A small business might thrive as an LLC, while larger operations might benefit from a C Corp.
• Tax Considerations: Assess your potential profits and how you want to handle taxation. S Corps often provide tax benefits for small businesses.
• Liability Exposure: If your business involves high risk, you may want the protection that an LLC or corporation offers.

Essential Tax Planning Strategies

While choosing the right entity is crucial, you'll also need effective tax planning strategies to position your business for success:

1. Understand California’s Franchise Tax Requirements

In California, all businesses subject to the franchise tax must pay a minimum of $800 annually, regardless of income. Be mindful of the filing deadlines to avoid penalties.

• Franchise Tax Board (FTB): Ensure compliance by registering with the FTB.

2. Keep Good Financial Records

Accurate bookkeeping is essential. Maintain separate bank accounts and accurate records for income and expenses to make tax filing straightforward.

3. Plan for State-Specific Deductions

California allows various deductions that can significantly reduce your taxable income. Familiarize yourself with:

• Sales Tax Deductions: Essential for Burbank retailers.
• Business Expense Deductions: Common expenses that can be deducted next year.
• Qualified Business Income (QBI): If you qualify, you may reduce your overall taxable income.

Important IRS Forms and Deadlines

The federal tax landscape comes with specific forms critical to your business. Here’s a breakdown:

• Form 1065: For partnerships.
• Form 1120: For C Corporations.
• IRS Form 2553: For S Corporations.
• CA Form 540: For individual tax filings.
• CA Form 568: For LLCs.

Key Deadlines

• Tax Day: Generally, April 15 for personal returns and for corporations.
• Estimated Tax Payments: Due quarterly.

Local Tax Obligations in Burbank

Factor in local taxes, such as business licenses and property taxes. For instance, check with the Burbank City Hall regarding specific permits needed for your business.

Common Pitfalls to Avoid in Tax Planning

Navigating tax planning involves avoiding certain common traps:

• Neglecting Estimated Taxes: Not paying estimated taxes can lead to penalties.
• Mixing Personal and Business Expenses: Keep everything separate to simplify tax filings.
• Ignoring Tax Advisors: The California tax code is intricately detailed. Consulting a CPA like Calculus Tax can significantly help you navigate these complexities.

Final Thoughts

Selecting the right business entity and structuring a robust tax plan are foundational steps for any new business in Burbank, California. It is crucial to stay informed about local, state, and federal tax laws.

By taking advantage of the resources available to you and consulting with experts at Calculus Tax, you can set your business up for lasting success. Don’t hesitate to reach out and explore the best options tailored to your unique business needs.

Start Your Journey Today

If you’re ready to take the next step in your entrepreneurial journey, consider reaching out for professional guidance. The right advice today can lead to big savings tomorrow!