Business

Businesses are here to make money.

The IRS wants you to make money. However, if you own a business just to take a tax write off, yo should think twice. After three years of losses, you could be looking at an audit. If your intent is to not make a profit, the IRS may not allow you to deduct your expenses. You could also be charged with fraud and sentenced with heavy fines and jail time.

Tax Tips for Small Business

Looking to start a business? Here are some basic facts to help ease your decision.

 

Advantages

Disadvantages

Sole Proprietorship

  • Easy To Form
  • Easy To Close
  • No corporation paperwork needed
  • Only needs to file personal return
  • Few legal restrictions
  • Personally Liable (Your personal assets at risk)
  • Can not defer tax from any surplus or profit retention
  • Can't bring in new owners or new capital from outside investors
  • Business ends upon the death of owner. No continuity.
  • All net profits are subject to Self Employment Tax

Partnership

  • Ability to utilize multiple business owners.
  • Simple to open.
  • Establishes team work
  • Possible to close with little or no additional taxation.
  • Partners distributive income is subject to Self Employment Tax
  • A partner is responsible for the another partners actions.
  • Profit Sharing
  • Disagreements among partners can hinder your business.

LLC

  • Steer clear of some S Corporation Restrictions.
  • Builds team work
  • Avoid the double tax of profits.
  • Self-employment tax can be taken on distributions rather than on whole profit.
  •  Liability and other aspect may differ depending on state law.
  • Profit Sharing
  • Need at least two partners in order to establish.
  • Disagreements among partners can hinder your business.

C Corporation

  • Very easy to transfer or sell the business.
  • Company can live on upon owners/shareholder's death.
  • You are not personally liable
  • Sell company stock to raise revenue.
  • You are double taxed on profits.
  • You must subject to many federal and state restrictions.
  • Upon closure of the business, you may have to pay tax on company gains, and various dissolution fees
  • Your corporate charter limits you business activities.

S Corporation

  • No personal liability.
  • Company can live on upon owners/shareholder's death.
  • Raise money by selling stock
  • Profits can pass through to the personal return without being subject to self-employment tax.
  •  Difficulty when choosing a filing tax year.
  • Contributions to pension plans are limited to amount shareholder receives in wages.
  • Tax to all shareholders regardless whether they take a distribution.
  • There are limits to the number of stockholders, which will limit outside capital.