House Bill No. 126, introduced in the Delaware legislature on May 9, 2013, would make two amendments to the Delaware LLC Act that would affect the rights of creditors. First, Section 6 of the Bill would Section 18-703(d) of the Delaware LLC Act to read as follows:
(d) The entry of a charging order is the exclusive remedy by which a judgment creditor of a member or a member’s assignee may satisfy a judgment out of the judgment debtor’s limited liability company interest and attachment, garnishment, foreclosure or other legal or equitable remedies are not available to the judgment creditor, whether the limited liability company has 1 member or more than 1 member.
House Bill No. 126, 147th Leg., § 6 (Del. May 9, 2012)(underlining in original, italics added). Second, Section 7 of the Bill would amend § 18-1101 of the Delaware LLC Act by inserting a new sub-paragraph (j), to read :
(j) The provisions of this chapter shall apply whether a limited liability company has 1 member or more than 1 member.
Id. at § 7 (underlining in original).
The first part of the amendment to § 18-703(d) elaborates on what “exclusive remedy” means. Among other things, it seems intened to avoid the result in cases such as would avoid the result, in cases such as Hotel 71 Mezz. Lender LLC v. Falor, 2010 NY Slip Op 01348, 14 NY3d at 307, 926 N.E.2d 1202 (2010) (slip Op.) and Olmstead v. Federal Trade Commission, 44 So. 3d 76 (Fla. 2010)(slip Op.), in which courts held that general creditors remedies, such as attachment (Falor) and levy and execution (Olmstead), can be used to reach interests in LLCs.
The second part of the amendment to §18-703(d), and new 18-1101(j) is aimed at the result, in cases such as Olmstead, and In re Albright, 291 B.R. 538 (Bankr. D. Colo. 2003), that allow a transferee of the interest of the sole member in a single-member LLC (SMLLC) to succeed to both the economic and the management rights of the member. With the SMLLC amendments, Delaware joins the race-to-the-bottom for the state most-friendly to the use of SMLLCs for asset p;rotection.
Choose Your Desktop Publishing Business Structure
Doing freelance design involves more than just saying you're open for business and getting a few clients. You need to choose a business structure. Explore the basic pros and cons of three primary types of business structures*.
*The information in this article applies primarily and in general to US and Canadian businesses. You should always check local laws as to forms of business, registration, and tax requirements.
SOLE PROPRIETORSHIP
The simplest form of doing business, a sole proprietorship is the structure that most freelance designers choose initially. Some stay with this form of business throughout their business life.
As the name implies, a sole proprietorship is an individual doing business under his or her own name or another name that doesn't include legal designations such as Inc. or Ltd. In some municipalities a husband and wife can be principals in a sole proprietorship without choosing a formal partnership or incorporation.
Pros
Easy to set up with few forms to file or fees to pay (generally only need to register an Assumed Name, if used, and obtain a local sales tax permit)
Business income is reported on your personal income tax form (detailed on separate business schedules or addendums)
100% ownership in the company
Cons
You assume personal liability for the business so that your own personal assets can be seized by the IRS or creditor to discharge any business debts incurred.
Doing Business As (DBA) a Fictitious Business Name (Why and How)
PARTNERSHIP
In a partnership, two or more individuals create a legal entity where the partners share in the profits. It's almost as easy to set up as a sole proprietorship although the parties need to draw up a partnership agreement outlining what each partner brings to the table and what happens when the partnership is dissolved. Partnerships can be general or limited, general partnerships being the most common. Limited liability partnerships are not available in all states or to all businesses.
Pros
Only slightly more complicated to set up than a sole proprietorship (drafting the partnership agreement)
When partners are carefully chosen the business benefits from the complementary skills and talents of each partner.
Business income and tax liability passes through to each partner so no separate tax filings are necessary for the entity.
Cons
Each partner can be held financially liable for the actions or inactions of the other partner in connection to the business.
Ownership is shared and depending on how the partnership agreement is drawn up, you may not have as much control of the business as you would with a sole proprietorship.
CORPORATION
Some businesses choose incorporation as a way to protect their personal assets and to take advantage of certain tax benefits. The C Corporation is more complicated than other business structures but may offer greater tax advantages in some situations.
Pros
Debts or other liabilities against the company do not usually pass through to the owners so that the owners personal assets are protected in case of lawsuits or bad debts.
Corporations can raise money by selling shares of stock in the company.
Corporations may be taxed at a lower rate and have better tax benefits than some other forms of business.
Cons
More paperwork, time, and expense is involved setting up and registering a corporation.
Legal requirements in terms of bookkeeping and tax filing is more complicated and expensive on an on-going basis than other business structures.
Ownership is in the hands of the stockholders and managed by the Board of Directors. Your control of the company may be limited if there are multiple stockholders and members of the board.
How to Incorporate Your Small Business in 7 Steps
The C Corporation may be the most familiar but there are other forms of incorporation including the the limited liability corporation or LLC which offers some of the benefits of both a corporation and a partnership and the S Corporation where taxes are handled similar to a partnership or sole proprietorship.
*The information in this article applies primarily and in general to US and Canadian businesses. You should always check local laws as to forms of business, registration, and tax requirements.
SOLE PROPRIETORSHIP
The simplest form of doing business, a sole proprietorship is the structure that most freelance designers choose initially. Some stay with this form of business throughout their business life.
As the name implies, a sole proprietorship is an individual doing business under his or her own name or another name that doesn't include legal designations such as Inc. or Ltd. In some municipalities a husband and wife can be principals in a sole proprietorship without choosing a formal partnership or incorporation.
Pros
Easy to set up with few forms to file or fees to pay (generally only need to register an Assumed Name, if used, and obtain a local sales tax permit)
Business income is reported on your personal income tax form (detailed on separate business schedules or addendums)
100% ownership in the company
Cons
You assume personal liability for the business so that your own personal assets can be seized by the IRS or creditor to discharge any business debts incurred.
Doing Business As (DBA) a Fictitious Business Name (Why and How)
PARTNERSHIP
In a partnership, two or more individuals create a legal entity where the partners share in the profits. It's almost as easy to set up as a sole proprietorship although the parties need to draw up a partnership agreement outlining what each partner brings to the table and what happens when the partnership is dissolved. Partnerships can be general or limited, general partnerships being the most common. Limited liability partnerships are not available in all states or to all businesses.
Pros
Only slightly more complicated to set up than a sole proprietorship (drafting the partnership agreement)
When partners are carefully chosen the business benefits from the complementary skills and talents of each partner.
Business income and tax liability passes through to each partner so no separate tax filings are necessary for the entity.
Cons
Each partner can be held financially liable for the actions or inactions of the other partner in connection to the business.
Ownership is shared and depending on how the partnership agreement is drawn up, you may not have as much control of the business as you would with a sole proprietorship.
CORPORATION
Some businesses choose incorporation as a way to protect their personal assets and to take advantage of certain tax benefits. The C Corporation is more complicated than other business structures but may offer greater tax advantages in some situations.
Pros
Debts or other liabilities against the company do not usually pass through to the owners so that the owners personal assets are protected in case of lawsuits or bad debts.
Corporations can raise money by selling shares of stock in the company.
Corporations may be taxed at a lower rate and have better tax benefits than some other forms of business.
Cons
More paperwork, time, and expense is involved setting up and registering a corporation.
Legal requirements in terms of bookkeeping and tax filing is more complicated and expensive on an on-going basis than other business structures.
Ownership is in the hands of the stockholders and managed by the Board of Directors. Your control of the company may be limited if there are multiple stockholders and members of the board.
How to Incorporate Your Small Business in 7 Steps
The C Corporation may be the most familiar but there are other forms of incorporation including the the limited liability corporation or LLC which offers some of the benefits of both a corporation and a partnership and the S Corporation where taxes are handled similar to a partnership or sole proprietorship.
7 Tasks To Help You Prepare for Business Tax Season
Tax season will be here before you know it, so it's time to prepare. There are some things you can do in the fall so you can hit the ground running in the busy time of January through April. Let's get started:
1. Find a tax advisor. Every business, no matter how large or small, needs a tax advisor, that is, someone who can review your company's financial statements and offer advice on how to prepare taxes, what deductions and credits to take, and how to minimize your tax bill. A good tax advisor is worth the price, and it takes time to find the right person, so if you don't have one, now's the time to start looking.
2. Get tax software. If you have a tax advisor, why do you need tax software? For a small business filing Schedule C, it's good to start working on your taxes and getting the essential information together to take to your tax preparer. Tax software can help you do that. You can get information on possible deductions and credits to discuss with your tax preparer, and you can get your business records in order to make the process easier (and cheaper) for the preparer. Read a comparison of business tax software, some of it available free online (for basic business taxes on Schedule C) or you can order it when it comes out later this fall.
3. Get your business tax records in order.Having complete records of business assets, loans, income and expenses means you will get through tax season more easily and quickly and save money on a tax preparer. It also means more deductions and credits and better results if you get audited. Read more about how to capture information for business records and the details on the records you need for business tax purposes.
4. Review 2012 tax changes. Some changes for 2012 can save you money in depreciation on business assets purchased this year. Other changes will expire in 2011. Read this article on 2012 business tax changes, gather information, and talk to your tax advisor about whether you might benefit from any of these changes.
5. Get forms for payroll taxes. If you do your own payroll tax processing, you will need forms for end-of-year reports. That means W-2s for employees and 1099-MISC forms for contractors, as well as W-3 and 1096 transmittal forms. You must use only IRS-authorized forms. Of course, if you have a payroll processing service, they can prepare these forms for you. Read more about how to get W-2 forms and other year-end payroll tax reporting forms.
6. Consider buying business vehicles or equipment, Depreciation deductions are the highest they have been or are likely to be (it's difficult to go above 100% deductions). Buying equipment in 2012 may allow you to take advantage of bonus depreciation or Section 179 deductions. Bonus depreciation may not be available in 2013, so it may be time to buy that equipment or business vehicle to get the increased deduction. Talk with your tax advisor about this so you have time to shop around and get the equipment. You must put the equipment in service (that is, start using it) in 2012 to take advantage of these depreciation deductions.
7. Review tax due dates for your business type. Don't get caught filing late or using the wrong form.
If you have a small business, including a sole proprietorship, partnership, or LLC, read this Tax Guide for Small Businesses, which includes filing deadlines and forms you will need, as well as information on amended business tax returns and extensions.
If you own a corporation or an S corporation, read this Guide to Corporate Taxes for helpful information on forms and filing.
1. Find a tax advisor. Every business, no matter how large or small, needs a tax advisor, that is, someone who can review your company's financial statements and offer advice on how to prepare taxes, what deductions and credits to take, and how to minimize your tax bill. A good tax advisor is worth the price, and it takes time to find the right person, so if you don't have one, now's the time to start looking.
2. Get tax software. If you have a tax advisor, why do you need tax software? For a small business filing Schedule C, it's good to start working on your taxes and getting the essential information together to take to your tax preparer. Tax software can help you do that. You can get information on possible deductions and credits to discuss with your tax preparer, and you can get your business records in order to make the process easier (and cheaper) for the preparer. Read a comparison of business tax software, some of it available free online (for basic business taxes on Schedule C) or you can order it when it comes out later this fall.
3. Get your business tax records in order.Having complete records of business assets, loans, income and expenses means you will get through tax season more easily and quickly and save money on a tax preparer. It also means more deductions and credits and better results if you get audited. Read more about how to capture information for business records and the details on the records you need for business tax purposes.
4. Review 2012 tax changes. Some changes for 2012 can save you money in depreciation on business assets purchased this year. Other changes will expire in 2011. Read this article on 2012 business tax changes, gather information, and talk to your tax advisor about whether you might benefit from any of these changes.
5. Get forms for payroll taxes. If you do your own payroll tax processing, you will need forms for end-of-year reports. That means W-2s for employees and 1099-MISC forms for contractors, as well as W-3 and 1096 transmittal forms. You must use only IRS-authorized forms. Of course, if you have a payroll processing service, they can prepare these forms for you. Read more about how to get W-2 forms and other year-end payroll tax reporting forms.
6. Consider buying business vehicles or equipment, Depreciation deductions are the highest they have been or are likely to be (it's difficult to go above 100% deductions). Buying equipment in 2012 may allow you to take advantage of bonus depreciation or Section 179 deductions. Bonus depreciation may not be available in 2013, so it may be time to buy that equipment or business vehicle to get the increased deduction. Talk with your tax advisor about this so you have time to shop around and get the equipment. You must put the equipment in service (that is, start using it) in 2012 to take advantage of these depreciation deductions.
7. Review tax due dates for your business type. Don't get caught filing late or using the wrong form.
If you have a small business, including a sole proprietorship, partnership, or LLC, read this Tax Guide for Small Businesses, which includes filing deadlines and forms you will need, as well as information on amended business tax returns and extensions.
If you own a corporation or an S corporation, read this Guide to Corporate Taxes for helpful information on forms and filing.
Tips For Surviving Your First Year in Business
How's Your Personal Bank Account?
Few small businesses make much profit their first year - if they make any profit at all. Even with a low-start-up cost business, you will eventually need to invest money into your business in order to grow it by expanding products, services, moving into new geographic territories, or hiring others to help you. The old, familiar saying it true: It takes money to make money.
Rule of Thumb: Have one year of savings already in the bank to live off before you quit your day job.
If you are not planning to personally fund your business, raise capital before you launch the business. The promise of money is never as good as cash in your bank account.
How to Ask Family and Friends for Money
Steps Before You Personally Guarantee a Business Loan
Protect Your Marriage By Not Becoming Overprotective About Your Business
If you are married, be honest with your spouse before quitting your job and say that business is unpredictable and you may need to rely on their income for an undetermined period of time. It is better to be surprise by a "good" month than by a "bad" month.
You should also discuss how you will deal with the business as a couple. Establishing early on who will do what (if you work together) will save you the heartache of arguing about the businesses ups and downs. If you have young children, expect them to become jealous if you spend more time working than you do with them. Allowing them to help in small ways can add up to big rewards.
If you become territorial about your business instead of involving family, you are guaranteed at least some friction. Even when family members (and friends) offer bad ideas, praise them and validate them for caring. See their input as a desire to help you succeed and not as criticism of you.
Putting aside your pride and Having thick skin will help you make better business decisions and keep your interpersonal relationships healthy and strong.
5 Tips For Working With Family
How To Work With Your Spouse
The Importance of Involving Your Family In Your Business
A Rainy Day Will Come
Other first-year start-up costs include insurance, taxes, and unexpected expenses. For example, most businesses need some form of technology to operate smoothly. If your computer dies or needs to be upgraded, you could be dead in the water if you do not have funds to draw on the handle emergencies.
Although savvy new business owners will factor in some rainy day costs for the businesses, they may forget the need to factor in personal rainy day events. If you have taken the plunge and are relying on your business for income, what happens if your business cannot pay you and you incur unexpected medical expenses, your car or home needs a major repair, or you need to upgrade your business wardrobe to impress clients?
Before You Get Too Excited About Profits…
Money is coming into your business and you are (and should be) doing cartwheels. But do not forget that you will need to pay quarterly taxes to the federal government and your state on any profits made.
Unless you are not going to owe any taxes for the year, you need to budget to pay taxes. Depending upon your business structure, this could mean payroll taxes as well as income taxes.
Many localities also base business license fees on how much money you make. Have a profitable year and your business license could cost you more next year.
How To Save On Business Taxes
IRS Payment Options If You Are Having Trouble Paying Your Business Taxes
Paying Yourself
The most important start-up cost to consider is your own salary. Many business owners are willing (and expect) to work for free, or at a reduced salary while they establish their businesses. However, you will still have personal expenses and bills to pay outside of your business expenses. If you do not have personal funds set aside to cover months where the business is not bringing in enough income to pay yourself, you will quickly find yourself in a difficult place.
Have a Backup Parachute In Place
If you form a sole proprietorship you and the business are essential one legal entity. If someone sues the business, they can collect from your personally. If the business has debts - they are your debts.
If you start a corporation, you limit your financial liability, however, you could also be booted out of your own business if your board of directors rallies to fire you.
To protect your long term personal and business future, be sure to research the various types of business structures to choose the one that makes the most sense for you. Just because your friend chose one type of business structure, does not mean it is right for you.
Types of Small Business Structures
Ask yourself in advance -- what happens if the business fails and you have already quit your job? The unexpected will not catch you off guard if you plan ahead. Losing a business is hard enough to deal with - losing your home because of a failed business is far worse.
Few small businesses make much profit their first year - if they make any profit at all. Even with a low-start-up cost business, you will eventually need to invest money into your business in order to grow it by expanding products, services, moving into new geographic territories, or hiring others to help you. The old, familiar saying it true: It takes money to make money.
Rule of Thumb: Have one year of savings already in the bank to live off before you quit your day job.
If you are not planning to personally fund your business, raise capital before you launch the business. The promise of money is never as good as cash in your bank account.
How to Ask Family and Friends for Money
Steps Before You Personally Guarantee a Business Loan
Protect Your Marriage By Not Becoming Overprotective About Your Business
If you are married, be honest with your spouse before quitting your job and say that business is unpredictable and you may need to rely on their income for an undetermined period of time. It is better to be surprise by a "good" month than by a "bad" month.
You should also discuss how you will deal with the business as a couple. Establishing early on who will do what (if you work together) will save you the heartache of arguing about the businesses ups and downs. If you have young children, expect them to become jealous if you spend more time working than you do with them. Allowing them to help in small ways can add up to big rewards.
If you become territorial about your business instead of involving family, you are guaranteed at least some friction. Even when family members (and friends) offer bad ideas, praise them and validate them for caring. See their input as a desire to help you succeed and not as criticism of you.
Putting aside your pride and Having thick skin will help you make better business decisions and keep your interpersonal relationships healthy and strong.
5 Tips For Working With Family
How To Work With Your Spouse
The Importance of Involving Your Family In Your Business
A Rainy Day Will Come
Other first-year start-up costs include insurance, taxes, and unexpected expenses. For example, most businesses need some form of technology to operate smoothly. If your computer dies or needs to be upgraded, you could be dead in the water if you do not have funds to draw on the handle emergencies.
Although savvy new business owners will factor in some rainy day costs for the businesses, they may forget the need to factor in personal rainy day events. If you have taken the plunge and are relying on your business for income, what happens if your business cannot pay you and you incur unexpected medical expenses, your car or home needs a major repair, or you need to upgrade your business wardrobe to impress clients?
Before You Get Too Excited About Profits…
Money is coming into your business and you are (and should be) doing cartwheels. But do not forget that you will need to pay quarterly taxes to the federal government and your state on any profits made.
Unless you are not going to owe any taxes for the year, you need to budget to pay taxes. Depending upon your business structure, this could mean payroll taxes as well as income taxes.
Many localities also base business license fees on how much money you make. Have a profitable year and your business license could cost you more next year.
How To Save On Business Taxes
IRS Payment Options If You Are Having Trouble Paying Your Business Taxes
Paying Yourself
The most important start-up cost to consider is your own salary. Many business owners are willing (and expect) to work for free, or at a reduced salary while they establish their businesses. However, you will still have personal expenses and bills to pay outside of your business expenses. If you do not have personal funds set aside to cover months where the business is not bringing in enough income to pay yourself, you will quickly find yourself in a difficult place.
Have a Backup Parachute In Place
If you form a sole proprietorship you and the business are essential one legal entity. If someone sues the business, they can collect from your personally. If the business has debts - they are your debts.
If you start a corporation, you limit your financial liability, however, you could also be booted out of your own business if your board of directors rallies to fire you.
To protect your long term personal and business future, be sure to research the various types of business structures to choose the one that makes the most sense for you. Just because your friend chose one type of business structure, does not mean it is right for you.
Types of Small Business Structures
Ask yourself in advance -- what happens if the business fails and you have already quit your job? The unexpected will not catch you off guard if you plan ahead. Losing a business is hard enough to deal with - losing your home because of a failed business is far worse.
Why Should I Create an Independent Contracting Business?
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.
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.
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