You may already have a plan and the form of your business entity set and if you do great, if not, I'd like to share a few things with you.

Form of Entity?

All offer advantageous to you when you start a business, however there are disadvantageous too.

==>Sole proprietorships - The formation is the most simple for a business owner.

A sole proprietor does not have to file a separate business tax return. A Schedule C is attached to your 1040 and filed with the IRS. Gains and losses from the business are simply combined with other personal taxable items.

The disadvantageous are that you have personal liability and lack of investment flexibility.

==> Partnerships - similar to sole proprietorships, in that the formation is generally easy, however, you would be wise to use an attorney.

Income and Expenses are simply passed through to the individuals personal tax returns. The disadvantageous are the same as being a sole proprietor, you have personal liability and there is a lack of investment flexibility.

==> Limited Liability Corporations (LLC’s) - do much better in limiting your liability, as the name implies, and there are other advantageous too.

The 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 business entity. Corporations vary in their structure and organization.

The two typical corporations that most CPA's or attorneys will recommend are S and C corporations. Here is a short explanation of the differences between S and C corporations, one should keep in mind that every state has different laws for corporations. What an accountant 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.

This article on STARTING A BUSINESS? is not "professionally" advising you on business matters, or business agreements. If you have any concerns in regards to your business, I would advise consulting an attorney.

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