Form of Entity?
All offer advantageous to you when you start a business , however there
are disadvantageous too.
- Sole proprietorships are the most simple for a businessowner.
A sole proprietor does not have to file a
separate businesstax return.
A Schedule C is attached to your 1040 and filed with the IRS.
Gains and losses from the businessare
simply combined with other personal
taxable items,
Disadvantages include having personal
liability and lack of investment
flexibility.
If you need cash you need to personally
have it in the bank, or you can borrow it
from the bank.
- Partnerships are similar to sole
proprietorships, in that the formation is
generally easy, however, you would be wise to use an attorney.
Also the taxes are simply passed through
to the individuals personal tax returns.
The disadvantages are the same as being a sole proprietor, personal
liability and
lack of investment flexibility.
- Limited Liability Corporations (LLC ’s)
do much better in limiting your liability,
as the name implies.
Disadvantages include the costs of setting up.
Federal limits on who and what are able to be LLC ’s and the tax
implications both
federal and state.
- Corporations offer the most personal and
asset protection and have the greatest
flexibility of any businessentity.
Corporations vary in their structure and
organization.
A corporation is not just a corporation.
You will need to select from various
types.
The two typical corporations that most
CPA's or attorneys will recommend are
S and C corporations.
You should keep in mind that every state
has different laws for corporations.
What an lawyer may tell someone in
California may not be true in Florida.
S Corporation:
- Allows for limited
liability of the owners/officers/directors.
-Typically runs on a calendar year.
- Full disclosure of corporate owners.
- Profits pass through to the individual tax return 1040. No tax
brackets separate from the personal tax brackets
apply.
- All profits are taxed even if not distributed.
- State taxes will apply for individuals who are located in a state with
an
individual state tax.
C Corporation
- Allows for limited liability of the
owners/officers/directors.
- Runs on a fiscal year, which may be designated by the board of
directors,
rather than on a calendar year
.
- Nevada requires no disclosure of corporate owners.
- Profits are taxed at corporate rates on an 1120 return separate from
the individual return.
- Profits can be kept as retained earnings.
When this article resumes, I'll go over the accounting and taxation
needs of a business . Look forward to seeing you then.
Related Articles:
Starting a Business 1
Starting a Business 2
Starting a Business 3
This article on STARTING A BUSINESS? is not
"professionally" advising you on businessmatters, or business
agreements. If you have any concerns
in regards to your business , I would advise consulting an attorney.
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About the Author
This article was written by Michael Herman, a CPA. Michael publishes the
Working At Home Gazette -
A Powerful Tool for those who already are, or Planning to, Working at
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