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Business structure and tax issues

Secrets For Starting A Business > Tips For Starting A Business - Incorporating

Know the tax implications of the business structure you are choosing.

If you're uncertain what option is best for you, consult an attorney familiar with small-business issues.

Sole Proprietor

As a sole proprietor or partner, you have full, personal tax liability for all the business's profits. The upside is that you can deduct the business's losses on your personal tax return.

C Corporation

A C corporation is itself a taxable entity. If it distributes money to you or other owners as a dividend, you also pay taxes, so the money is taxed twice.

S Corporation

With an S corporation, profits pass directly to you without being taxed at the corporate level. Also, S corporation dividends and distributions are treated as passive income, so they aren't subject to payroll taxes.

S corporations have a special risk for passive owners because they will be taxed on their distributable share of the corporation's earnings. If the S corporation's active owner-managers opt to put profits back into the company instead of distributing them to shareholders, a passive owner could have to pay taxes on money he or she didn't receive--"an awful situation," says [DuBoff]Create?.

So if you set up an S corporation, make sure you are actively in control of it, or incorporate safeguards to make sure you'll receive enough money to cover taxes on distributable profits.

LLC

LLCs can be set up similar to C corporations or like pass-through S corporations, but "an LLC that elects to be taxed as a pass-through doesn't get as favorable treatment as an S corporation," Leonard DuBoff says.

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Acemakers Wiki: Tips For Starting A Business - Business structure and tax issues

Hive Wiki, The Powerful, Collaborative, Flexible Alternative To Blogs! Setup A No-Cost Hive Wiki Today! Home \| Edit \| Index \| Recent Changes Business structure and tax issues Secrets For Starting A Business > Tips For Starting A Business - Incorporating Know the tax implications of the business structure you are choosing. If you're uncertain what option is best for you, consult an attorney familiar with small-business issues. Sole Proprietor As a sole proprietor or partner, you have full, personal tax liability for all the business's profits. The upside is that you can deduct the business's losses on your personal tax return. C Corporation A C corporation is itself a taxable entity. If it distributes money to you or other owners as a dividend, you also pay taxes, so the money is taxed twice. S Corporation With an S corporation, profits pass directly to you without being taxed at the corporate level. Also, S corporation dividends and distributions are treated as passive income, so they aren't subject to payroll taxes. S corporations have a special risk for passive owners because they will be taxed on their distributable share of the corporation's earnings. If the S corporation's active owner-managers opt to put profits back into the company instead of distributing them to shareholders, a passive owner could have to pay taxes on money he or she didn't receive--"an awful situation," says [DuBoff]Create?. So if you set up an S corporation, make sure you are actively in control of it, or incorporate safeguards to make sure you'll receive enough money to cover taxes on distributable profits. LLC LLCs can be set up similar to C corporations or like pass-through S corporations, but "an LLC that elects to be taxed as a pass-through doesn't get as favorable treatment as an S corporation," Leonard DuBoff says. From Home Cached copy until 10:17:28 AM 33 hits This Page: Edit \| History This Wiki: Home \| Related To Tips_For_Starting_A_Business_-_Business_structure_and_tax_issues \| Index \| Recent Changes \| Random Page \| Search Login \| Create New Wiki \| Wiki List 1/7/2009 2:34 AM v0.61.106 ADBEFEED
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