A pass-through entity is best, as it eliminates taxes on the entity as a whole. Instead, owners of the entity are taxed on the profits they own. Owners can make deductions for startup or operating losses. The most common pass-through entities are limited partnerships, LLPs, LLCs, S corporations, sole proprietorships, and general partnerships.

A partnership or LLC can qualify to be treated as a corporation for tax purposes. You may choose S corporation status if your business is a corporation, or treated as one. This decision is binding, so consider it carefully.