Maybe you have taken a job as a contractor within the company where you used to be an employee. Or maybe you were hired as an independent contractor to do work for a company. In any case, as a contractor or independent contractor, you are not an employee. You are self-employed.
You should set up your own business identity. Here is why:
Why do I have to set up a business entity if I am an independent contractor? Because you are now self-employed, with all the reality of self employment, and the benefits.
The Reality of Self-Employment
You will have income, probably in the form of a 1099-MISC, which you must pay taxes on. If you don't set yourself up as a business entity and start keeping a record of expenses so you can deduct them, you will have to pay tax on the entire amount of your income.
You don't have an employer to withhold federal and state income taxes from your income, so you will need to do your own withholding.
You must pay self-employment tax (Social Security and Medicare) on your income from self-employment. No one pays this for you, so you must plan to set aside this money (15.2 percent of your profits) to pay with your tax return.
You have no one to pay your insurance (health insurance, liability protection), so you will have to pay it yourself or do without.
The Benefit of Setting up a Business Entity
If you set up a business entity such as a sole proprietorship, or better, a limited liability company, you can deduct legitimate business expenses to minimize your tax bill.
You can also use the deductions to minimize your profit and your self-employment tax.
You can use your business entity to purchase insurance and take the deductions for this expense, again minimizing your tax bill.
Setting up an entity minimizes the chance that the IRS will say your business is just a hobby or deny your deductions.
You can set up simply as a sole proprietor, or you can go the next step and register as a limited liability company or other entity. In any case, taking your business to the next level by establishing a business entity separate from your personal finances is worth your time and trouble.
How to Incorporate your Business Organization and Choose your Business Entity
When an entrepreneur starts a new business, one of the first decisions they have to make is what form of business organization, or business entity, to have. Are you going to incorporate your business? There are many choices - sole proprietorship, partnership, C Corporation, S Corporation, LLC, LLP, and more. This issue should have already been covered in the company's business plan. This article will help you make that decision.
What are the Characteristics of a Corporation?
Incorporation means to combine in one mass or to assimilate. Some of the characteristics of a corporation is that incorporated company is treated legally, in some ways, like an individual. It can sue or be sued. It files taxes on its own. One of the most popular characteristics is that it provides the owner or owners of the business with limited liability, which means that if the corporation gets sued, the owners' personal assets are protected. Corporations have continuous life. They do not die if an owner dies. They provide easy transferability and divisibility of assets.
Benefits of Incorporating your Business
Some specific examples include the issue of taxes. Corporate tax rates are much lower than personal tax rates. As a result, a business that is incorporated can provide income to the owners that an unincorporated business cannot. Another example is the issue of liability. A corporation protects its owners through the characteristic of limited liability. Assets are owned by the corporation and the corporation, not the owners, are responsible for all liabilities.
Other characteristics of a corporation is that it has easier access to the capital markets than a business that is not incorporated; in other words, it can raise equity financing, in particular, easier or float a bond issue. Corporations can set up retirement and health insurance plans not available to individuals. Corporations also have credit ratings separate and apart from their owners.
Disadvantages of Incorporating your Business
One major disadvantage of incorporation is called double taxation. This means that income is taxed once on the corporate level. Then, when the income is paid in the form of dividends to stockholders, it is taxed again on the personal level of the stockholders.
Another disadvantage of the corporate form of business organization is simply paperwork. It becomes more necessary for the business firm to hire an accountant, particularly for taxes. Paperwork is just more with regard to complexity and volume.
What are the Characteristics of a Corporation?
Incorporation means to combine in one mass or to assimilate. Some of the characteristics of a corporation is that incorporated company is treated legally, in some ways, like an individual. It can sue or be sued. It files taxes on its own. One of the most popular characteristics is that it provides the owner or owners of the business with limited liability, which means that if the corporation gets sued, the owners' personal assets are protected. Corporations have continuous life. They do not die if an owner dies. They provide easy transferability and divisibility of assets.
Benefits of Incorporating your Business
Some specific examples include the issue of taxes. Corporate tax rates are much lower than personal tax rates. As a result, a business that is incorporated can provide income to the owners that an unincorporated business cannot. Another example is the issue of liability. A corporation protects its owners through the characteristic of limited liability. Assets are owned by the corporation and the corporation, not the owners, are responsible for all liabilities.
Other characteristics of a corporation is that it has easier access to the capital markets than a business that is not incorporated; in other words, it can raise equity financing, in particular, easier or float a bond issue. Corporations can set up retirement and health insurance plans not available to individuals. Corporations also have credit ratings separate and apart from their owners.
Disadvantages of Incorporating your Business
One major disadvantage of incorporation is called double taxation. This means that income is taxed once on the corporate level. Then, when the income is paid in the form of dividends to stockholders, it is taxed again on the personal level of the stockholders.
Another disadvantage of the corporate form of business organization is simply paperwork. It becomes more necessary for the business firm to hire an accountant, particularly for taxes. Paperwork is just more with regard to complexity and volume.
How Business Types are Taxed
his guide will take you through the top pieces of information to help you prepare for partnership taxes, including types of partnerships and how they are taxed, when and where to file, which form to use, and estimating partnership taxes. Before you enlist the help of a CPA, Enrolled Agent, or other qualified tax preparer to prepare your partnership's taxes, there is some basic information about partnership taxes you should know. Read more about Getting Help with Business Taxes.
Multiple-member LLC's are taxed as partnerships.
The information provided in this tax guide is relevant to multiple-member limited liability companies, which are taxed as partnerships for income tax purposes. Read more about how LLCs pay income taxes.
2012 Partnership Tax Return Due Date
The due date for 2012 (December 31 year-end) partnership tax returns: April 15, 2013. The final due date for an extended partnership tax return is September 15, 2013.
Types of Partnerships
Several different types of partnerships may be formed, depending on the preferences of the partners. A partnership can be formed as a general partnership, with all partners participating in the management, or it may have limited partners. A limited liability partnership may also be formed. All partnership types file federal income tax using the forms described below; how the individual partners are taxed depends on the type of partnership and the specific details of the partnership agreement. Read more about types of partnerships.
Partnership Federal Income Tax Forms
Partnerships file their federal income tax returns using Form 1065. Form 1065 is an information return, meaning that no tax is imposed directly on the partnership based on information in Form 1065.
The partnership must also file a Schedule K-1 for each partner, showing that partner's distribution of the profits or losses of the partnership for that year. The Schedule K-1 is filed with the individual partner's personal income tax return for the year, and the total from the Schedule K-1 is recorded in Line 12 - Business Income.
Tax Filing Documents Needed for Partnership Income Tax Returns
To file your partnership income taxes, you will need to provide some financial reports and other documents to your tax preparer. These documents include a balance sheet for the beginning of the partnership's fiscal year and the end of that year, a profit and loss statement for the end of the year, information to calculate cost of goods sold, and other documents. Here is a list of the documents needed to prepare a partnership income tax return. And get more details on filing a partnership income tax return.
Where and How to File Partnership Income Taxes
You can file your partnership tax return on Form 1065 by mail or you can have your tax preparer e-file the return. If you are filing by mail, the address for sending in your federal tax return for a partnership depends on your state. See page 4 of instructions for Form 1065 for the mailing address for your state.
Where to mail Form 1120S
Filing an extension for partnership income taxes.
Where and how to file an amended partnership tax return.
Filing an Application for a Partnership Tax Return Extension.
State Partnership Taxes
Partners must pay income taxes on their distribution of profit in a partnership in the state or states where the partnership is located. Partnership taxes are paid on the individual partner's personal state tax returns.
More on Partnership Taxes from the IRS
The IRS web page titled Partnerships includes a description of the taxes paid by partnership businesses and the individual partners. It's worth a look if you are confused.
Multiple-member LLC's are taxed as partnerships.
The information provided in this tax guide is relevant to multiple-member limited liability companies, which are taxed as partnerships for income tax purposes. Read more about how LLCs pay income taxes.
2012 Partnership Tax Return Due Date
The due date for 2012 (December 31 year-end) partnership tax returns: April 15, 2013. The final due date for an extended partnership tax return is September 15, 2013.
Types of Partnerships
Several different types of partnerships may be formed, depending on the preferences of the partners. A partnership can be formed as a general partnership, with all partners participating in the management, or it may have limited partners. A limited liability partnership may also be formed. All partnership types file federal income tax using the forms described below; how the individual partners are taxed depends on the type of partnership and the specific details of the partnership agreement. Read more about types of partnerships.
Partnership Federal Income Tax Forms
Partnerships file their federal income tax returns using Form 1065. Form 1065 is an information return, meaning that no tax is imposed directly on the partnership based on information in Form 1065.
The partnership must also file a Schedule K-1 for each partner, showing that partner's distribution of the profits or losses of the partnership for that year. The Schedule K-1 is filed with the individual partner's personal income tax return for the year, and the total from the Schedule K-1 is recorded in Line 12 - Business Income.
Tax Filing Documents Needed for Partnership Income Tax Returns
To file your partnership income taxes, you will need to provide some financial reports and other documents to your tax preparer. These documents include a balance sheet for the beginning of the partnership's fiscal year and the end of that year, a profit and loss statement for the end of the year, information to calculate cost of goods sold, and other documents. Here is a list of the documents needed to prepare a partnership income tax return. And get more details on filing a partnership income tax return.
Where and How to File Partnership Income Taxes
You can file your partnership tax return on Form 1065 by mail or you can have your tax preparer e-file the return. If you are filing by mail, the address for sending in your federal tax return for a partnership depends on your state. See page 4 of instructions for Form 1065 for the mailing address for your state.
Where to mail Form 1120S
Filing an extension for partnership income taxes.
Where and how to file an amended partnership tax return.
Filing an Application for a Partnership Tax Return Extension.
State Partnership Taxes
Partners must pay income taxes on their distribution of profit in a partnership in the state or states where the partnership is located. Partnership taxes are paid on the individual partner's personal state tax returns.
More on Partnership Taxes from the IRS
The IRS web page titled Partnerships includes a description of the taxes paid by partnership businesses and the individual partners. It's worth a look if you are confused.
How Business Types are Taxed
his guide will take you through the top pieces of information to help you prepare for partnership taxes, including types of partnerships and how they are taxed, when and where to file, which form to use, and estimating partnership taxes. Before you enlist the help of a CPA, Enrolled Agent, or other qualified tax preparer to prepare your partnership's taxes, there is some basic information about partnership taxes you should know. Read more about Getting Help with Business Taxes.
Multiple-member LLC's are taxed as partnerships.
The information provided in this tax guide is relevant to multiple-member limited liability companies, which are taxed as partnerships for income tax purposes. Read more about how LLCs pay income taxes.
2012 Partnership Tax Return Due Date
The due date for 2012 (December 31 year-end) partnership tax returns: April 15, 2013. The final due date for an extended partnership tax return is September 15, 2013.
Types of Partnerships
Several different types of partnerships may be formed, depending on the preferences of the partners. A partnership can be formed as a general partnership, with all partners participating in the management, or it may have limited partners. A limited liability partnership may also be formed. All partnership types file federal income tax using the forms described below; how the individual partners are taxed depends on the type of partnership and the specific details of the partnership agreement. Read more about types of partnerships.
Partnership Federal Income Tax Forms
Partnerships file their federal income tax returns using Form 1065. Form 1065 is an information return, meaning that no tax is imposed directly on the partnership based on information in Form 1065.
The partnership must also file a Schedule K-1 for each partner, showing that partner's distribution of the profits or losses of the partnership for that year. The Schedule K-1 is filed with the individual partner's personal income tax return for the year, and the total from the Schedule K-1 is recorded in Line 12 - Business Income.
Tax Filing Documents Needed for Partnership Income Tax Returns
To file your partnership income taxes, you will need to provide some financial reports and other documents to your tax preparer. These documents include a balance sheet for the beginning of the partnership's fiscal year and the end of that year, a profit and loss statement for the end of the year, information to calculate cost of goods sold, and other documents. Here is a list of the documents needed to prepare a partnership income tax return. And get more details on filing a partnership income tax return.
Where and How to File Partnership Income Taxes
You can file your partnership tax return on Form 1065 by mail or you can have your tax preparer e-file the return. If you are filing by mail, the address for sending in your federal tax return for a partnership depends on your state. See page 4 of instructions for Form 1065 for the mailing address for your state.
Where to mail Form 1120S
Filing an extension for partnership income taxes.
Where and how to file an amended partnership tax return.
Filing an Application for a Partnership Tax Return Extension.
State Partnership Taxes
Partners must pay income taxes on their distribution of profit in a partnership in the state or states where the partnership is located. Partnership taxes are paid on the individual partner's personal state tax returns.
More on Partnership Taxes from the IRS
The IRS web page titled Partnerships includes a description of the taxes paid by partnership businesses and the individual partners. It's worth a look if you are confused.
Multiple-member LLC's are taxed as partnerships.
The information provided in this tax guide is relevant to multiple-member limited liability companies, which are taxed as partnerships for income tax purposes. Read more about how LLCs pay income taxes.
2012 Partnership Tax Return Due Date
The due date for 2012 (December 31 year-end) partnership tax returns: April 15, 2013. The final due date for an extended partnership tax return is September 15, 2013.
Types of Partnerships
Several different types of partnerships may be formed, depending on the preferences of the partners. A partnership can be formed as a general partnership, with all partners participating in the management, or it may have limited partners. A limited liability partnership may also be formed. All partnership types file federal income tax using the forms described below; how the individual partners are taxed depends on the type of partnership and the specific details of the partnership agreement. Read more about types of partnerships.
Partnership Federal Income Tax Forms
Partnerships file their federal income tax returns using Form 1065. Form 1065 is an information return, meaning that no tax is imposed directly on the partnership based on information in Form 1065.
The partnership must also file a Schedule K-1 for each partner, showing that partner's distribution of the profits or losses of the partnership for that year. The Schedule K-1 is filed with the individual partner's personal income tax return for the year, and the total from the Schedule K-1 is recorded in Line 12 - Business Income.
Tax Filing Documents Needed for Partnership Income Tax Returns
To file your partnership income taxes, you will need to provide some financial reports and other documents to your tax preparer. These documents include a balance sheet for the beginning of the partnership's fiscal year and the end of that year, a profit and loss statement for the end of the year, information to calculate cost of goods sold, and other documents. Here is a list of the documents needed to prepare a partnership income tax return. And get more details on filing a partnership income tax return.
Where and How to File Partnership Income Taxes
You can file your partnership tax return on Form 1065 by mail or you can have your tax preparer e-file the return. If you are filing by mail, the address for sending in your federal tax return for a partnership depends on your state. See page 4 of instructions for Form 1065 for the mailing address for your state.
Where to mail Form 1120S
Filing an extension for partnership income taxes.
Where and how to file an amended partnership tax return.
Filing an Application for a Partnership Tax Return Extension.
State Partnership Taxes
Partners must pay income taxes on their distribution of profit in a partnership in the state or states where the partnership is located. Partnership taxes are paid on the individual partner's personal state tax returns.
More on Partnership Taxes from the IRS
The IRS web page titled Partnerships includes a description of the taxes paid by partnership businesses and the individual partners. It's worth a look if you are confused.
Booth in Farmers Market or Flea Market - Tax Issues
If it sounds like fun to grow produce or make crafts and sell them at a local market, it's not quite that simple. Seasonal businesses like booths at flea markets, farmers markets, and craft fairs must also pay taxes. Although each locality and state has different regulations, if you have a business where you sell to customers, you probably are going to have to pay taxes.
Garage Sales Not Usually Taxable Businesses
But what about garage sales? Why aren't they taxable? A garage sale is (supposedly) a once-a-year event, and you are selling items you already purchased and for which you have already paid the taxes. Kay Bell, of Don't Mess with Taxes, notes that the IRS says, "if you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, your gain is taxable as a capital gain." Kay explains that a garage sale nets you less than you originally paid, not more.
The second reason a garage sale isn't a taxable business is that it's very temporary; usually a family has only one garage sale a year, for one weekend. If you had a garage sale every other weekend all summer long, your city might come knocking at your door and ask to see your business license.
Flea Market, Farmers Market, and Craft Sale Booths
If you have a booth at a flea market, farmers market or craft sale you are creating or growing something, and you expect to sell it for a profit. And profits are taxable. If you are selling at a flea market booth, for example, you may be selling collectibles you picked up at garage sales for a low price, and you want to sell for a higher price and make a profit (otherwise, why would you bother?). Those profits are taxable.
What Taxes Must a Seasonal Business Pay?
A seasonal business must pay, at minimum:
Income taxes on profits of the business, depending on your business type
Sales taxes on sales of taxable items
Self-employment taxes (social security and Medicare) for yourself as a business owner
Employment taxes, if you have employees
Income Taxes for Seasonal Businesses
Seasonal businesses like flea market or farmers market booth owners must pay income taxes just like other types of businesses. How your business pays income taxes depends on your business type. If you don't formally adopt another type of business structure, your business is classified as a sole proprietorship and the business taxes are paid through your personal income tax return. The income and expenses of your business are reported on Schedule C, then the net income or loss is carried over onto your Form 1040.
Being a business means you can collect those expenses for making your products and getting them to market to reduce your business income. If you don't file business taxes and claim these expenses as business deductions, they otherwise are not deductible to you on your income taxes.
Many localities charge other taxes, and your state may charge franchise taxes or other types of business taxes. As you start out, keep it simple, but do make sure you pay those taxes. Ask a CPA or tax advisor for help.
Garage Sales Not Usually Taxable Businesses
But what about garage sales? Why aren't they taxable? A garage sale is (supposedly) a once-a-year event, and you are selling items you already purchased and for which you have already paid the taxes. Kay Bell, of Don't Mess with Taxes, notes that the IRS says, "if you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, your gain is taxable as a capital gain." Kay explains that a garage sale nets you less than you originally paid, not more.
The second reason a garage sale isn't a taxable business is that it's very temporary; usually a family has only one garage sale a year, for one weekend. If you had a garage sale every other weekend all summer long, your city might come knocking at your door and ask to see your business license.
Flea Market, Farmers Market, and Craft Sale Booths
If you have a booth at a flea market, farmers market or craft sale you are creating or growing something, and you expect to sell it for a profit. And profits are taxable. If you are selling at a flea market booth, for example, you may be selling collectibles you picked up at garage sales for a low price, and you want to sell for a higher price and make a profit (otherwise, why would you bother?). Those profits are taxable.
What Taxes Must a Seasonal Business Pay?
A seasonal business must pay, at minimum:
Income taxes on profits of the business, depending on your business type
Sales taxes on sales of taxable items
Self-employment taxes (social security and Medicare) for yourself as a business owner
Employment taxes, if you have employees
Income Taxes for Seasonal Businesses
Seasonal businesses like flea market or farmers market booth owners must pay income taxes just like other types of businesses. How your business pays income taxes depends on your business type. If you don't formally adopt another type of business structure, your business is classified as a sole proprietorship and the business taxes are paid through your personal income tax return. The income and expenses of your business are reported on Schedule C, then the net income or loss is carried over onto your Form 1040.
Being a business means you can collect those expenses for making your products and getting them to market to reduce your business income. If you don't file business taxes and claim these expenses as business deductions, they otherwise are not deductible to you on your income taxes.
Many localities charge other taxes, and your state may charge franchise taxes or other types of business taxes. As you start out, keep it simple, but do make sure you pay those taxes. Ask a CPA or tax advisor for help.
Information on Your Business Startup Process
You have decided to start a new business but you don't know where to begin. Here is all the information you need to get started. This section takes you through all the applications and filings and organizational decisions you will need to make so you can start your business.
Business Licenses
Business Name
Business Startup Attorney
Employer ID Number
Start a One-Person Business
Frequently Asked Questions About Forming a Limtied Liability Company (LLC)
Here are some frequently asked questions about forming a limited liability company, including questions about operating agreements, costs to form an LLC, and registering the LLC with a state.
Business Licenses
Business Name
Business Startup Attorney
Employer ID Number
Start a One-Person Business
Frequently Asked Questions About Forming a Limtied Liability Company (LLC)
Here are some frequently asked questions about forming a limited liability company, including questions about operating agreements, costs to form an LLC, and registering the LLC with a state.
4 Reasons to Incorporate Your Business
4 Reasons to Incorporate (or Form an LLC)
When you start a business, it's tempting to get caught up in listening to attorneys and advisors tell you "You MUST incorporate." Incorporating a business may be a good move for your new business, or it may be something you can wait and do later. Understanding the reasons for incorporating a business can help you make a decision.
1. To get financing. Some lenders prefer that you have a specific legal business structure, rather than just a sole proprietorship. Particularly for liability purposes (see reason #2), the bank wants to know that your business is protected so you can pay back your loan.
2. To limit potential liability. Liability is variable, depending on the type of products or services you provide and the number and type of employees. If you are working at home writing software or a blog, your liability is probably limited. On the other hand, if you have products that could harm people or if you have employees, you might want more protection than just liability insurance. Your liability may change as your business grows and as you add employees.
3. For tax reasons. This one is tricky. Corporations are separate tax entities, and the taxes on a corporation may or may not be greater than taxes for a company that is taxed at the owner's personal rate. Spend some time with your tax advisor to make sure you understand the tax implications of incorporation.
4. To manage income as your business grows. When you start out, you may not be making money right away, and you may decide it's not worth it to incorporate. But as you go along, you may find that you want to separate your business income from personal income and take a salary. Having a corporation allows you to do this; it's one case where a corporation is preferable to an LLC (an LLC is taxed at the personal tax rates of the owners). Timing is important, so if you think you might be making a lot of money in a particular year, you may want to switch to a corporation or S corporation.
The bottom line: Don't incorporate just because your attorney says it's a good idea. Attorneys make money helping you incorporate, and they make no money if you stay a sole proprietor or create a do-it-yourself LLC.
Selecting your business structure is a decision is not a once-and-done situation. Revisit the question often, as your business grows and changes. Review all the alternatives and consider what's best for your business at this time and into the future. Remember, it's always possible, and easy, to change from a sole proprietorship to an LLC or a corporation. It is almost impossible to un-incorporate your business and go back to being a sole proprietor.
When you start a business, it's tempting to get caught up in listening to attorneys and advisors tell you "You MUST incorporate." Incorporating a business may be a good move for your new business, or it may be something you can wait and do later. Understanding the reasons for incorporating a business can help you make a decision.
1. To get financing. Some lenders prefer that you have a specific legal business structure, rather than just a sole proprietorship. Particularly for liability purposes (see reason #2), the bank wants to know that your business is protected so you can pay back your loan.
2. To limit potential liability. Liability is variable, depending on the type of products or services you provide and the number and type of employees. If you are working at home writing software or a blog, your liability is probably limited. On the other hand, if you have products that could harm people or if you have employees, you might want more protection than just liability insurance. Your liability may change as your business grows and as you add employees.
3. For tax reasons. This one is tricky. Corporations are separate tax entities, and the taxes on a corporation may or may not be greater than taxes for a company that is taxed at the owner's personal rate. Spend some time with your tax advisor to make sure you understand the tax implications of incorporation.
4. To manage income as your business grows. When you start out, you may not be making money right away, and you may decide it's not worth it to incorporate. But as you go along, you may find that you want to separate your business income from personal income and take a salary. Having a corporation allows you to do this; it's one case where a corporation is preferable to an LLC (an LLC is taxed at the personal tax rates of the owners). Timing is important, so if you think you might be making a lot of money in a particular year, you may want to switch to a corporation or S corporation.
The bottom line: Don't incorporate just because your attorney says it's a good idea. Attorneys make money helping you incorporate, and they make no money if you stay a sole proprietor or create a do-it-yourself LLC.
Selecting your business structure is a decision is not a once-and-done situation. Revisit the question often, as your business grows and changes. Review all the alternatives and consider what's best for your business at this time and into the future. Remember, it's always possible, and easy, to change from a sole proprietorship to an LLC or a corporation. It is almost impossible to un-incorporate your business and go back to being a sole proprietor.
Free Online Course in Types of Business
Want to start a business but you're not sure what type of business to select? Want to maximize your profit and pay lower business taxes by selecting the right business type? Want to change your business type to avoid legal liability? Sign up for my seven-day free Guide to Types of Business course.
Purpose of This Course
Many people will try to give you advice on selecting a business type. Some will say, "this is the best type because it works for me." Attorneys may try to steer you to incorporating because it's the only business type they know. Others will tell you an LLC is the "best" type. Before you make decision that will cost you lots of money, learn about the types of business by taking this course. The course is seven days - an email lesson a day for seven days. By the end of the course, you will have a good basic understanding of business types and you will be on your way to selecting the type of business that best fits your needs.
Do You Have Questions about this Course?
If you have questions about any of the lessons in this course, or you want to clarify something or ask about a specific situation, you can:
Ask the question in the Forum
or
Email the instructor directly: biztaxlaw@aboutguide.com
A disclaimer: The information in this course is general in nature and it is not intended to be tax or legal advice. Laws change, and every business is different, so be sure to get tax or financial advice before you make important decisions.
Lesson One - An Introduction to Business Types
The two basic business types - separated from owner and not separated from owner (by William Perez, About.com Guide to Taxes
A Checklist of Factors to Consider in Selecting a Business Type
Business and Legal Factors in Selecting a Business Type, from William Perez, About.com Guide to Taxes
Business Types and Employment Taxes
All About the Sole Proprietor Business
Lesson Two: Partnerships and Limited Liability Companies (LLCs)
What is a Partnership
How to Start a Partnership
Types of Partnerships
The Partnership Agreement
What is a Limited Liability Company (LLC)?
How to Form an LLC
All About the Single-Member LLC
Lesson Three - Corporations and S Corporations
Types of Corporations
How to Incorporate a Business, including the incorporation process in each U.S. state
Corporations, Liability, and the Corporate Shield
How to Become an S Corporation
More about S Corporations
Corporations vs. S Corporations - A Comparison
Corporations vs. LLCs, a Comparison
S Corporations vs. LLCs - A Comparison
Lesson Four - Income Taxes for Business Types
How a Sole Proprietor Pays Income Taxes
How a Partnership Pays Income Taxes
How an LLC Pays Income Tax
How a Corporation Pays Income Tax
How an S Corporation Pays Income Tax
Business Types and Profitable vs. Unprofitable Businesses, by William Perez, Guide to Taxes
Lesson Five - Selecting a Business Type
Advantages/Disadvantages of Sole Proprietorship
Tax Advantages and Disadvantages of an LLC
Comparisons of Business Types
Business Type Comparison Listing/Factors
Liability Comparison - LLC vs. S Corporation
Lesson Six: Special Circumstances
S Corporations vs. LLCs
LLC Taxed as Corporation
The Qualified Joint Venture
The Disregarded Entity
Lesson Seven: Resources and a Course Outline
Resources from the US Business Law & Taxes website
More about Business Structures on the IRS Website
Find information on your state's Secretary of State website
The Small Business Administration on Business Types
Purpose of This Course
Many people will try to give you advice on selecting a business type. Some will say, "this is the best type because it works for me." Attorneys may try to steer you to incorporating because it's the only business type they know. Others will tell you an LLC is the "best" type. Before you make decision that will cost you lots of money, learn about the types of business by taking this course. The course is seven days - an email lesson a day for seven days. By the end of the course, you will have a good basic understanding of business types and you will be on your way to selecting the type of business that best fits your needs.
Do You Have Questions about this Course?
If you have questions about any of the lessons in this course, or you want to clarify something or ask about a specific situation, you can:
Ask the question in the Forum
or
Email the instructor directly: biztaxlaw@aboutguide.com
A disclaimer: The information in this course is general in nature and it is not intended to be tax or legal advice. Laws change, and every business is different, so be sure to get tax or financial advice before you make important decisions.
Lesson One - An Introduction to Business Types
The two basic business types - separated from owner and not separated from owner (by William Perez, About.com Guide to Taxes
A Checklist of Factors to Consider in Selecting a Business Type
Business and Legal Factors in Selecting a Business Type, from William Perez, About.com Guide to Taxes
Business Types and Employment Taxes
All About the Sole Proprietor Business
Lesson Two: Partnerships and Limited Liability Companies (LLCs)
What is a Partnership
How to Start a Partnership
Types of Partnerships
The Partnership Agreement
What is a Limited Liability Company (LLC)?
How to Form an LLC
All About the Single-Member LLC
Lesson Three - Corporations and S Corporations
Types of Corporations
How to Incorporate a Business, including the incorporation process in each U.S. state
Corporations, Liability, and the Corporate Shield
How to Become an S Corporation
More about S Corporations
Corporations vs. S Corporations - A Comparison
Corporations vs. LLCs, a Comparison
S Corporations vs. LLCs - A Comparison
Lesson Four - Income Taxes for Business Types
How a Sole Proprietor Pays Income Taxes
How a Partnership Pays Income Taxes
How an LLC Pays Income Tax
How a Corporation Pays Income Tax
How an S Corporation Pays Income Tax
Business Types and Profitable vs. Unprofitable Businesses, by William Perez, Guide to Taxes
Lesson Five - Selecting a Business Type
Advantages/Disadvantages of Sole Proprietorship
Tax Advantages and Disadvantages of an LLC
Comparisons of Business Types
Business Type Comparison Listing/Factors
Liability Comparison - LLC vs. S Corporation
Lesson Six: Special Circumstances
S Corporations vs. LLCs
LLC Taxed as Corporation
The Qualified Joint Venture
The Disregarded Entity
Lesson Seven: Resources and a Course Outline
Resources from the US Business Law & Taxes website
More about Business Structures on the IRS Website
Find information on your state's Secretary of State website
The Small Business Administration on Business Types
Selecting, Registering, and Trademarking Your Business Name
Selecting a business name is an important element of your business start-up. Your name can mean everything - like Amazon - and it can enhance the success of your business. The process of selecting a business name involves legal elements, including registering your name and possibly trademarking your name if it is unique. Here are the steps in the process:
1. Select Your Business Name
The name you create for your new business is important. Once you select a business name you can only change it with a great deal of difficulty. For example, if you create business cards and a web site and you use the business name in legal documents, you won't be able to change it without changing many legal documents. Think about these factors as you consider a business name.
1. Select Your Business Name
The name you create for your new business is important. Once you select a business name you can only change it with a great deal of difficulty. For example, if you create business cards and a web site and you use the business name in legal documents, you won't be able to change it without changing many legal documents. Think about these factors as you consider a business name.
2. Research Your Business Name
After you have selected a business name, do some research to make sure no one else has your name. You can never be certain you aren't copying the name of another business, but doing the research will minimize the chance that you will have to change the name because it conflicts with the name of another business.
3. File a Fictitious Name (D/B/A) Notice for Your Business
When a company is legally registered with one name and that company is advertising or trading or is commonly known by another name, the common name is a “fictitious name.” Learn about when to register a fictitious name and when you don't need to.
4. Register Your Business Name
What is the difference between a "fictitious name" and a business name registration? A fictitious name is used when the legal name of your business (the name on incorporating documents or the name of your limited liability company) is different from the name you use for trade. Depending upon the type of business entity you set up, you may need to register your business name with your state and with localities. Learn more about the business name registration process.
5. Trademark Your Business Name
If you have a unique business name that you want to protect, you might want to consider trademarking the name. The trademark process is explained in this article.
6. Change Your Business Name
Think carefully before you change your business name. Changing your business name means changing almost everything, from business cards to products to your web site and more. If you feel you must change your name, the process you use will depend on your business type. Read this article for the details.
Selecting a Business Organization Type - a Checklist
Which Business Organization Type Should I Select?
Here are some questions to ask yourself as you consider what business legal form to use:
How much time and money does it take to set up? The costs range from minimal, for a sole proprietorship, to expensive, for a corporation. Here is a list, in order of cost from lowest to highest:
Sole Proprietorship
To start a sole proprietorship, all you need is a business license for your city, possibly a “fictitious name” statement, and a business checking account.
Partnership
To start a partnership, you will need an attorney to help you with the partnership agreement.
Limited Liability Company (LLC)
To start a Limited Liability Company, you will need to apply to your state Secretary of State to become an LLC, by filing Articles of Organization. You may be able to do this filing yourself, or you can get an attorney to help.
Corporation
To start a corporation, you will need to pay an attorney to help you set up your corporation correctly, in the state where you will be operating, including a corporate charter and by-laws.
What happens to the business if I am no longer there? If you want the business to continue, form a corporation, or put provisions in your partnership agreement or LLC operating agreement to allow the business to continue without you. If you choose a sole proprietorship, the business ends if you leave or die or can no longer run the business.
How much control do I have? Select a sole proprietorship or single-member LLC if you want complete control. In a partnership or multi-member LLC, you will have to share control with your partners or the other Members. In a corporation, you will have a Board of Directors helping you make decisions, so if total control over the business is important to you, don’t incorporate.
Who receives the profits and the losses? If you want all the profits, you must assume all the losses. Set up as a sole proprietorship or an LLC to keep all the profits (after taxes, of course!). If you set up as a corporation, you will have to give some money to the other shareholders in the form of dividends.
Who pays the taxes? In a corporation, the business pays the income taxes, at the corporate tax rate. In most other forms, you can decide to pay taxes through your personal tax return, depending on your personal tax rate.
What is my liability? As a sole proprietor, you will have all of the business liability for bad debts of the business, as well as for other liabilities, such as for negligence, product liability, or professional liability. You can limit your liability by setting up an LLC or, even better, by forming a corporation. Because the corporation is a separate entity, you may be shielded personally from the liability of the corporation. This is a tricky area, so make sure you understand your personal liability in each of these forms of business. Find out more from your attorney before you make a decision.
In the end, whatever factor is most important to you will determine the form of business ownership you choose. Talk to your CPA and your attorney for more advice and information.
Still confused about business legal types? Sign up for my free online course Guide to Types of Business. You will receive seven email lessons in seven days.
Here are some questions to ask yourself as you consider what business legal form to use:
How much time and money does it take to set up? The costs range from minimal, for a sole proprietorship, to expensive, for a corporation. Here is a list, in order of cost from lowest to highest:
Sole Proprietorship
To start a sole proprietorship, all you need is a business license for your city, possibly a “fictitious name” statement, and a business checking account.
Partnership
To start a partnership, you will need an attorney to help you with the partnership agreement.
Limited Liability Company (LLC)
To start a Limited Liability Company, you will need to apply to your state Secretary of State to become an LLC, by filing Articles of Organization. You may be able to do this filing yourself, or you can get an attorney to help.
Corporation
To start a corporation, you will need to pay an attorney to help you set up your corporation correctly, in the state where you will be operating, including a corporate charter and by-laws.
What happens to the business if I am no longer there? If you want the business to continue, form a corporation, or put provisions in your partnership agreement or LLC operating agreement to allow the business to continue without you. If you choose a sole proprietorship, the business ends if you leave or die or can no longer run the business.
How much control do I have? Select a sole proprietorship or single-member LLC if you want complete control. In a partnership or multi-member LLC, you will have to share control with your partners or the other Members. In a corporation, you will have a Board of Directors helping you make decisions, so if total control over the business is important to you, don’t incorporate.
Who receives the profits and the losses? If you want all the profits, you must assume all the losses. Set up as a sole proprietorship or an LLC to keep all the profits (after taxes, of course!). If you set up as a corporation, you will have to give some money to the other shareholders in the form of dividends.
Who pays the taxes? In a corporation, the business pays the income taxes, at the corporate tax rate. In most other forms, you can decide to pay taxes through your personal tax return, depending on your personal tax rate.
What is my liability? As a sole proprietor, you will have all of the business liability for bad debts of the business, as well as for other liabilities, such as for negligence, product liability, or professional liability. You can limit your liability by setting up an LLC or, even better, by forming a corporation. Because the corporation is a separate entity, you may be shielded personally from the liability of the corporation. This is a tricky area, so make sure you understand your personal liability in each of these forms of business. Find out more from your attorney before you make a decision.
In the end, whatever factor is most important to you will determine the form of business ownership you choose. Talk to your CPA and your attorney for more advice and information.
Still confused about business legal types? Sign up for my free online course Guide to Types of Business. You will receive seven email lessons in seven days.
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