Monday, June 27, 2022
spot_img

Latest Posts

What’s Your Business Structure and How to Know it?

Tax time is here in the states…Again! What does that have to do with the way your business is structured? So what’s your business structure?

Everything!

It will determine the amount of income you are taxed and the liabilities you are responsible for for your business.

The Internet makes it relatively easy for you to start a business. It’s easy to operate your business as a Sole Proprietorship. So easy that many don’t bother to investigate the other options available to them.

Your business enables you to be self-employed and control your own destiny. A year later you get a big shock. You’ve worked hard and put in many hours only to discover you’re paying the biggest tax. The self-employment tax.

Perhaps your business didn’t make it or you get sued. Surprise, as a sole proprietor, your personal assets are not protected and can be touched by your creditors.

So what are your options? and what are the pros and cons of each?

Business Structure
Credit @pexels.com

SOLE PROPRIETORSHIP:

Makes it easy for you to operate a business without a lot of regulations. You are the owner and you are in control of your business. The business is you.

It is highly recommended that you do set up a separate checking account for your business.

PRO’s

easy and inexpensive to start
simple to run
no separate federal income tax required
all assets are owned by the owner

CON’s

  • only one owner allowed
  • owner responsible for all losses
  • unlimited personal responsibility-your personal assets can be touched. This is probably
  • the biggest drawback.
  • difficulty to raise money
  • lack of continuity
  • taxed at the “self-employment” rate

PARTNERSHIPS

Least popular business structure. Requires an agreement among all partners. There are two types, General and Limited

PRO’s

  • flexible form of business
  • unlimited number of partners
  • multiple sources of money

CON’s

  • unlimited liability
  • self-employment tax
  • can be responsible for partners actions
  • need the consent of all partners before being sold or transferred.

CORPORATIONS

Yes, an individual can be a corporation. The biggest advantage is the limited liability feature. Personal assets cannot be touched. There are two well-known types. The C corp. and the Subchapter S corp.

PRO’s

  • limited liability
  • tax shelter benefits
  • continuity of business
  • ease of ownership
  • ease of raising money

CON’s

  • closely regulated
  • the high legal start-up cost
  • extensive record-keeping
  • double taxation
  • requires separate tax returns

The S Corporation Business Structure

PRO’s same as above plus eliminates the double taxation.
CON’s same as above except fringe benefits not deductible and is limited to 35 shareholders.

There is another option for the small business owner and that is the Limited Liability Corp. This is the simplest choice for getting limited liability but it is subjected to the self-employment tax.

There is no right or wrong business structure. Many businesses start out as sole proprietorships and incorporate as their business grows.

Information is power. The more information you have, the more you can protect and grow your business. Consult with your accountant and lawyer to determine the best structure and plan of action for your business.

Tax Information for Small Businesses

(ARA) – The IRS publishes a lot of tax information to help small business owners, and now there are more ways than ever before to get it. You can always visit an IRS office to get copies of IRS forms and publications, but the IRS has made it easier for busy people to get the materials they need without leaving their office.

If you have access to a personal computer, you can browse and download IRS forms and publications from the IRS Web site, www.irs.gov, and you can also get interactive help with your taxes while you’re online. When you click on the “Tax Info for Business” section, you’ll find frequently asked tax questions and answers and the latest information on selected business tax topics. You’ll also find links to other Internet sites of interest to businesses.

A good item for every small business to have on hand is IRS Publication 1518, Yearly Tax Calendar for Small Businesses. This attractive 12-month wall calendar is specially designed to help businesses meet their tax obligations all year. It shows key due dates for submission of tax forms and payments, offers tips on a variety of topics ranging from starting a small business to planning for retirement, and describes ways to get more tax and business information from the IRS and other sources.

Latest Posts

spot_imgspot_img

Don't Miss

Stay in touch

To be updated with all the latest news, offers and special announcements.