Day 21: Start your own business #2
Greetings Everyone!
We will continue to dissect the actions needed to start a business.
Today, we will focus on the different business entities, and how they can effect you.
We will keep it simple, but provide a link to a more
detailed explanation. The first entity is the Sole Proprietorship:
Sole Proprietorship:
A sole proprietorship is the simplest and most common
structure chosen to start a business. It is an unincorporated business owned
and run by one individual with no distinction between the business and you, the
owner. You are entitled to all profits and are responsible for all your business’s
debts, losses and liabilities.
This is the easiest to create, and can be done with or
without an SS-4 document, as spoke of in prior blog posting. You will be
able to pass your business deductions through your personal taxes.
LLC/LLP
A Limited Liability Company (LLC) is an entity created by
state statute. Depending on elections made by the LLC and the number of
members, the IRS will treat an LLC either as a corporation, partnership, or as
part of the owner's tax return (a "disregarded entity"). A domestic
LLC with at least two members is classified as a partnership for federal income
tax purposes unless it files Form 8832 and elects to be treated as a corporation.
For income tax purposes, an LLC with only one member is treated as an entity
disregarded as separate from its owner, unless it files Form 8832 and
affirmatively elects to be treated as a corporation. However, for purposes of
employment tax and certain excise taxes, an LLC with only one member is still
considered a separate entity.
This is another entity that can be easy to acquire, but you
must understand the tax ramifications. You will have to pay to create a
LLC, which the amount is determined by your state, usually around $99. I
would suggest this entity, if you are actually selling a product or starting a
website. This will keep the business separate from you, as well as you
will be able to pass your business deductions through your personal taxes.
Corporation
In forming a corporation, prospective shareholders exchange
money, property, or both, for the corporation's capital stock. A corporation
generally takes the same deductions as a sole proprietorship to figure its
taxable income. A corporation can also take special deductions. For federal
income tax purposes, a C corporation is recognized as a separate taxpaying
entity. A corporation conducts business, realizes net income or loss, pays
taxes and distributes profits to shareholders.
I would only suggest this one, if you have a Brick and
Mortar, and a Business Plan and strategy. This entity is a little harder
to set up, and cost a lot higher than the others with great reason. Only
if you plan to issue stock and try to raise capital for your business, I would
not suggest going this route.
As I stated, we were just giving a brief overview of the
different entities of business structure. if you would like to learn more
about each one, please use the links that are provided above. The IRS is
a great resource, as well as the internet itself. I strongly suggest that
"EVERYONE" should start a business, at least a Sole Proprietorship or
LLC, for tax purposes...You will thank me later once you get the groove of
things...
If you missed the prior post: Start your own business #1
If you missed the prior post: Start your own business #1
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