Part 5/9:
A critical part of running a business is understanding entity classifications. Sol emphasizes the importance of selecting an appropriate classification—either as an S Corporation or a C Corporation through IRS forms, specifically Form 2553 or Form 8832. He advises that without proper classification, an LLC may be treated as a disregarded entity, which fundamentally changes the tax structures and reductions available.
This plays a significant role in determining how taxes are applied, where individual entity owners may face much harsher limitations compared to those enjoyed by corporations. As a disregarded entity, individuals are subject to all limitations surrounding ordinary individual income tax, essentially negating the tax benefits that having a corporation might afford.