Anyone know what are the benefits on a Sole Proprietorship? All I know is that there is no business tax but all revenue earned must be claimed as personal income and pay PI taxes. Any info regarding this would be great.

http://www.ianr.unl.edu/pubs/consumered/nf253.htm for some general info, although tax implications vary from state to state

Hi,

My main business is accounting, so maybe I can help you some.

Sole Proprietorship is filed on your tax return via form Schedule C. You pay taxes on the net income your business makes. Revenue-Expenses=Net Income.

You have to pay regular Federal Income Tax and State Tax on what you made (state tax depending on where you live). Also you pay Self-Employment Tax. This is the biggie tax so to speak that you pay. It is 15.3% of business' net income. You do however get to deduct half of that the other adjustments sectino of the tax return.

Is there any benefits? Not really. I mean forming a S-Corporation might help you.... but thats a totally different animal :)

I hope this helps.

Danyelle

Originally posted by geekgirldany
Hi,

My main business is accounting, so maybe I can help you some.

Sole Proprietorship is filed on your tax return via form Schedule C. You pay taxes on the net income your business makes. Revenue-Expenses=Net Income.

You have to pay regular Federal Income Tax and State Tax on what you made (state tax depending on where you live). Also you pay Self-Employment Tax. This is the biggie tax so to speak that you pay. It is 15.3% of business' net income. You do however get to deduct half of that the other adjustments sectino of the tax return.

Is there any benefits? Not really. I mean forming a S-Corporation might help you.... but thats a totally different animal :)

I hope this helps.

Danyelle

Hey Danyelle, can you tell me some info on S - Corporation (SHELL Corp?). I mean i went to www.mycorporation.com and all I can find is Non Profit CORP / Profession CORP/ LLC / INC. Right now I'm operating all my business at home with a remote tech. Right now I need some sort of entity because I can't rent a office without it. So Company Name S Corp will be the full name or is it Company Corp or Company Inc. I went to a local consulting agency and they suggested I start a Sole Proprietorship.

andy,
well from what i have been told by my CPA is that it is better to form a LLC a LLC is one step below a Scorp or INC

and a LLC also works with a partnership at lest on the fed level all you ahve to do is fill out form C and send it a long with your 1040. states will differ a bit on a LLC but it provides you with a safty net incase you are sued for what ever reason and you will kepp your shirt on your back:D

just my two cents
James aka jamenjaw

Hi Andy

On S-Corporation, you basically go through a lawyer and setup a corporation. You then need to send in a form 2553, Election For A Small Business Corporation. This is what will make you an S-Corp to the IRS.

S-Corporations are separate entities. Unlike the sole Proprietorship, you must keep track of all money you withdraw for personal use. This is reported on the S-Corp Tax Return but is not taxable to you. No double tax on profits. Is just that if you hada huge lost one year and withdrew alot of money for personal use... might look strange to gov't.

Also as an officer of the corporation you must pay yourself a salary/payroll. Now what the gross wage amount is, it is up to you. Your suppose to pay yourself a payroll so you can pay the 15.3% into the gov't to cover your Social Security TAx/Self Employment tax. Thats one benefit is that you could pay yourself a less amount for a few years til you get your business going. Then increase it later.

Also since the S-Corp is a separate entity, if you was to get sued they would go after the corporation, not you personally. Thats the one major benefit of a S-Corp is the liability aspect.

All the rest is "suppose" to be similar as a sole Proprietorship. The same taxes are "suppose" to be paid.

The net income of the S-Corp is carried over to your personal tax return and is taxed by just Federal and state tax. Remember you paid in your 15.3% when you paid yourself a payroll through the year.


I'm not sure on LLC's. Most of the small businesses I do work for have elected to become S-Corporations.

Lots to it I know, hope I didn't confuse.

Danyelle

I'd recommend the IRS website irs.gov... it has plenty of information.

The tax regulations for S-Corps and LLC's vary widely from state to state. Do not just look at the Federal tax implications.

Also, you do not need to incorporate to get a business license. You simply need to register your name, called an assumed name or fictitious name. Go to your state's Controller's web site for more information.

If you would like to tell me your location, I will be glad to send you some information/links relative to your state.

Best to PM me to get my attention.

From a liability stand point an S corp is the way to go. With a sole prop. you open ALL your assets up for liability if something goes haywire and you end up losing money. byebye car, house, tv...It may be a little more work to setup an S-corp, but you are protected a lot more if something unforseen happens.

If you get sued with an S corp, the worst that can happen is that your business has to close and if you dont keep any assets in the business, then there is nothing to sue for...

I'm in Boston / Massachusetts.

One more thing:

If i form an LLC can i switch over to S CORP later on? :)

Yes, and it is easier going from LLC > S COrp than the other way around.

I wonder will IRS kick my butt if I register or form a LLC and not do anything to with for a year (no business activity).

They have some great articles on the benefits of the different ways to organize your business on guru.com that I was reading the other day. They gear their articles to independent contractors, but I think that they would apply to most everyone.

http://www.guru.com/channel/finance/askexpert/Q12028.jhtml

The gist is, LLC and S Corp suck compared to C Corp if you're an individual. And if you're a professional service provider, you'd be better off sticking as a sole proprietor. At least that's what I got out of it.

Except that under a sole proprietor if you get sued for something everything you own gets put onto the table, at least with an S corp and maybe a LLC you protect your person assets. Really depends on your client base and who they are.

Bad things can happen to any company...ie enron...but any ways, depends on how big you are and what you need to protect..

well whats best suited for a start up company with just the CEO and a tech?

Interesting article on the Guru website.

You get double taxed btw on a C-Corp.

that is why an s corp seems more enlightening.

I would recommend an LLC in your case.
LLC's do not have a "double-tax" either..

I would suggest picking up the book I did which has helped tremendously. Book is "Business Resource Kit for Dummies". It goes into great detail about the different kinds of Corps and what the pros/cons are of each one.

I'll post more from the book tomorrow (Monday) eve if you would like if you have certain questions.

Laterz.

Can ya post more info about LLCs from the book? Where did you buy the book? Is it listed in Amazon.com ?

An LLC's taxes will be easier, but where i am at they cost more to start up. They have limited liability, but there are loop holes to that liability that you need to dig for to find out (ask a lawyer).

a Sub S Corp provides more of a corporate style, and profits can be taken over to personal income (if there are any). It is a little more work because they (gov't) wants you to pay taxes quarterly (if you miss them or dont pay them, i only paid like 60.00 in penalties...whoopty dooooo...just did them at the end of the year like everyone else).

I personally think a sub S is more protected for the shareholders than a limited liability and i think my personal assets are worth the little extra work.

Originally posted by geekgirldany

You get double taxed btw on a C-Corp. Personally it always bugs me when people say that without explaining it, because it's, in my opinion, a misleading statement.

What people like to call "double taxation" would occur only if you pay yourself dividends or other distributions of the corporation's profit. In that case the corporation pays income tax on the profit, then you pay personal income tax on the remainder after it becomes "your money."

But, especially in small corporations, it's very easy to minimize if not eliminate that effect -- simply by reducing or eliminating the paper profit of the corporation. You can do that by paying the owners a salary, by paying them as consultants, or by paying them for expenses incurred in carrying out corporate business.

In a closely held small corporation, successful management often means minimizing profit! But on the other hand, the corporate tax rate, in the US, is almost certainly less than the personal rate paid by the owners. You can take advantage of that by allowing the corporation to retain some portion of the profits -- so that taxes are paid at the corporate rate, and since those profits never become "your money" you don't have to pay personal income tax on them. That's one advantage a C has over an S corporation.

Sorry, should have been an edit, not a quote.

Originally posted by Synergy
Can ya post more info about LLCs from the book? Where did you buy the book? Is it listed in Amazon.com ?

Sorry, didn't bring the book into work, but I can tomorrow eve. =)

And yes, it is available on Amazon. I bought it locally at Barnes and Noble..

http://www.amazon.com/exec/obidos/ASIN/0764550934/qid=1013481246/sr=2-3/ref=sr_2_3/102-6845863-7251369

ISBN: 0764550934

Laterz..

I talked to some attorneys within the month who told me that shareholders can receive dividend payments w/o double taxing coming into play, if a S-corp company. They also told me that a shareholder or officer of a company does NOT have to take a salary. Therefore, no employment taxes, etc. You would only need to pay taxes on the dividends.

I was interested to know whether someone starting a company could choose not to take a salary, thus not have to deal with employment taxes, and being able to leave the profits in the company for use in growing the company. And if need be, were there circumstances under which one could receive funds from the company w/o incurring an employment tax liability.

I also learned in conversations with attorneys in various states - in my research regarding the pro's and con's of LLC's vs. incorporating and changing to S corp status - that the "old school" attorneys by and large don't do LLC's, still do the standard incorporations/conversions to S corps - and that they aren't necessarily well versed about LLC's. One of them conceded they were not well versed on LLC's, didn't know (as an example) if LLC's could have shareholders. They said if LLC's couldn't have shareholders, they would still recommend standard incorporation and then converting to a S-corp, but if LLC's can have shareholders, an LLC might be the way to go. He recommended contacting a CPA for a definitive answer whether LLC or S-corp was the way to go.

Hello
I can't comment on the US situation but I know that as soon as I went from sole proprietor to incorporated company I was unable to get credit - not even a normal dial up connection or a cellphone, until the company was 2 years old.

Gordon

Originally posted by Serena
I talked to some attorneys within the month who told me that shareholders can receive dividend payments w/o double taxing coming into play, if a S-corp company. They also told me that a shareholder or officer of a company does NOT have to take a salary. Therefore, no employment taxes, etc. You would only need to pay taxes on the dividends.Of course there's no requirement that any kind of corporation have any employees at all, and certainly not that the shareholders be employed (how many thousands of shareholders do some corporations have, after all? There's no requirement that every Microsoft shareholder be an employee).

With an S corporation it's a little more confusing than necessary to think of dividends. The company's income (and tax liability)simply is passed through to the shareholders. With a C corporation, the company itself is a taxable entity, it's up to you (technicall, the board of directors) whether any profit is distributed to the shareholders.

That can be an advantage of a C corporation if you're looking for outside funding. In my present corporation, I own a sizeable majority of the shares. Another active person owns a chunk. "Outside" investors who have no involvement in operations own a segment. People like that might be hesitant to buy a piece of the company if it means that they are complicating their tax situations because the company's profits now pass through to them. As it is, the only liability they have comes when we distribute dividends, at which time they must declare that as income.

I was interested to know whether someone starting a company could choose not to take a salary, thus not have to deal with employment taxes, and being able to leave the profits in the company for use in growing the company.As I mentioned, an advantage of a C corporation in that situation can be that the tax on those profits is at the lower corporate tax rate. In an S corporation, those profits are yours -- you pay the tax on them on your personal return at whatever rate you are taxed.

He recommended contacting a CPA for a definitive answer whether LLC or S-corp was the way to go. Good advice. Talk to a lawyer about the law; talk to an accountant about taxes.

Now I went to a lawyer about a S Corp, his response was that the LLC was the best way for me to go and he do also recommend S-Corp but I also consulted a CPA and she said LLC would be the way to go. Confusing...