J.K. Lasser's Small Business Taxes 2022

CHAPTER 28Tax Strategies for Multiple Businesses

1. Advantages and Disadvantages of Multiple Entities
2. When to Run Multiple Activities within One Business
3. Treatment of Multiple Corporations
4. Tax Rules for Owners of Multiple Businesses

“Multiple businesses” connotes multinational corporations with intertwining ownership of many entities. But small business owners may conduct different activities through various entities. These entrepreneurs simultaneously own and usually run 2 or more businesses.

There may be sound legal, business, and tax reasons for using multiple businesses rather than funneling all activities through a single entity. Liability issues, for example, are one good reason for operating separate activities through more than one business. This chapter focuses primarily on the tax implications of running multiple businesses.

Advantages and Disadvantages of Multiple Entities

Some activities can naturally and logically exist within a single entity. For example, a beauty salon can provide grooming services and sell beauty products using a single business. This makes sense. This can be done, for example, using a single entity or a holding company, with different activities run by different divisions, each with its own name.

For other situations, however, conducting different activities through separate entities makes more sense. Here are some pros and cons to using multiple entities. (The impact on the hobby loss rule of conducting separate activities is explained ...