How is business entity selection relevant to taxation?
In the United States, we have the so-called check-the-box system of federal taxation that also applies to the States as well. When you’re forming a business entity, you’ll essentially pick the type of business entity or entities that would be most useful to you for state law purposes, but then you have to choose how those entities are going to be taxed for federal and state income tax purposes. There’s not complete flexibility in the choice of taxation, but you really have to know which state entities are compatible with which forms of federal and state taxation. It’s a two-prong decision. It can get a little complicated. This is how those two areas relate.