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Choosing a Business Entity

Benefit or LiabilityB U S I N E S S    ENTITY
Sole
Proprietor

You probably need a dba / doing business as fictitious name filing

Partnership

 

S Corp


 

C Corp

 

LLC

 
Are you protected from Liability?NoNo;  all partners are jointly liable for actions of others.YesYesYes
No.  owners 1 2 or moreNo more than 75Unlimited Unlimited-one person LLC allowed in most states
Taxation on Income Personal taxProfits flow to partners who pay personal taxProfits flow through to owners, who pay personal tax on it. The corp. must pay taxes on its profits, and the owners on distributions to them by the corporation. LLC profits flow to members who pay personal tax.  Disadvantage: self employment taxes.
Can Owners Deduct losses form their personal tax paymentsYesYesYesNoYes
 Do you have to  do payroll paperwork?YesYesNoNoYes
Can you decide how much income or expenses to allocate among owners regardless of the capital each owner invests in the business entity? Not applicableYesNoNoYes
Advantageseasy set up and understandcan allocate income and expenses as agreed among partnersNo Social Security or Medicare taxes100% deductible health insurance, fully deductible medical reimbursement and fringe benefits plans,   up to $50,000 profits are taxed at 15% if left in the corporation rather than at your  higher, personal income tax rate. Limited Liability as in a  corporation with pass through income benefits of a partnership. 
Disadvantages Personal liability,  self-employment tax Liable for actions of other partners.  Self-employment tax.no health insurance deduction and limited deductions for home officecannot use corp. expenses to offset your personal income. if corp. has a lot of profits, doublet taxation occursSelf employment tax, unsettled, and insufficient law issues as to the legal and tax treatment of this entity.

 

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