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Frequently asked questions

  • What is a Sole Proprietorship?

    A Sole Proprietorship is the simplest, least complicated and most inexpensive business to set-up and mange. It is unincorporated and is setup and owned by a single individual. There is no difference between the business and you, the owner. They are one and the same. When taxes are filed they are filed as part of your individual tax filing.

  • What are the benefits of a Sole Proprietorship?

    Pros of a Sole Proprietorship include ease of setting up and running the business, If you have no employees, you have no payroll tax compliance requirements. You also do not have to file a separate tax return from your personal tax return. The business files a Schedule C that is part of your personal tax return.

  • What are the disadvantages of a Sole Proprietorship?

    Cons include: The inability to give yourself W2 wages and you will have to pay Self Employment taxes on your income from the business. There is no legal protection for your personal assets. Because you and the business are one and the same you are at risk of losing your personal assets should you be sued, Finally, it will be more difficult to raise capital or get a loan from a bank.

  • What is an S Corporation?

    The S Corp is a unique corporate entity. It is formed by filing as a corporation in the headquartered state. To be treated as an S Corporation, Form 2553 must be filled out and filed. An S Corporation is not taxed directly, but rather the income flows-through from the corporation directly to the owners’ individual tax return(s). The taxes paid on income earned form an S Corporation is dependent on the owner’s personal income tax return and the tack bracket they fall into.

  • What are the advantages of an S Corporation? .

    An S Corporation Provides a tax savings to owners. Owners of an S Corporation are required to take a “reasonable and customary” salary. However, they are also allowed to take some income from the business as distributions. Distributions are not subject to SS and Medicare tax. An S Corporation provides a clear delineation between the business and shareholders. Shareholders can come and go and the business can continue to exist undisturbed. It also affords protection of personal assets of the shareholders, should the business be sued.

  • What are the advantages of an S Corporation?

    An S Corporation Provides a tax savings to owners. Owners of an S Corporation are required to take a “reasonable and customary” salary. However, they are also allowed to take some income from the business as distributions. Distributions are not subject to SS and Medicare tax. An S Corporation provides a clear delineation between the business and shareholders. Shareholders can come and go and the business can continue to exist undisturbed. It also affords protection of personal assets of the shareholders, should the business be sued.

  • What are the disadvantages of an S Corporation?

    More regulator requirements, controls and systems: An S Corporation has a requirement to schedule director and shareholder meetings, record minutes from those meetings, adoption and updates to bylaws and maintain good standing with regulatory agencies. Not conforming to corporate requirements can cause the corporate veil to be pierced and shareholders loose the legal protection afforded by a the corporate structure. Owners are required to take a “reasonable and customary” salary. The IRS looks specifically for owner salaries that are below the norm. It is a major red flag to the IRS when they see a low salary and high distributions taken by owners.

  • What is a C Corporation?

    A C Corporation is an independent entity owned by shareholders. For any legal action brought against the company, it is the corporation that is legally liable and not the shareholders. C Corporations are more complex than other business structures require more administrative compliance requirements and thus more costly to maintain. A corporation that is publically traded is a C Corporation. It is chosen by owners who intend to raise capital by taking the company public through an Initial Public Offering (IPO). To form a C Corporation, the business must be formed under the laws of the state it is registered to. The tax brackets for C Corporation are separate and independent from the tack brackets for individuals. The corporation pays taxes according to its income tax bracket. If dividends are paid to shareholders, the shareholders are taxed on the dividends paid. Thus, for an owner of a corporation receiving a dividend there is double taxation. The corporation pays tax on income earned and any dividends paid out to shareholders will be taxed to the shareholder receiving the dividend.

  • What is the advantage of a C Corporation?

    For shareholders of corporations the personal assets are protected. For shareholders, the risk is generally limited to the investment in stock of the company. Other benefits for a C Corporation is the ability to raise capital through the sale of stock, owners only pay taxes on what is paid to them in the form of salaries or dividends and the corporation pays taxes on profits according to a separate corporate tax rate. Finely, a corporation can be more attractive when hiring employees. Generally corporations will offer more competitive benefits packages and potential ownership through stock options.

  • What is the disadvantage of a C Corporation?

    Corporations are more costly business ventures to launch and operate. In addition, owners of corporations can be subject to double taxation. The corporation pays taxes on all corporate profits. When dividends from profits are paid to shareholders it is taxed and paid by the individuals receiving the dividend. Finely, corporations are much more regulated, which requires increased paperwork, bookkeeping and other compliance regulatory requirements.

  • What is a Partnership?

    A Partnership is a single business where two or more individuals share ownership. A Partnership is established by registering it with the state it is headquartered. The Partnership must file an annual informational tax return. The Partnership however does not pay taxes on its reported income. Instead the income flows through the Partnership to the Partners’ individual tax returns. The Partners pay taxes based on their individual tax rate. In addition to paying income tax on income earned by the Partnership, they also have to pay self-employment tax and Excise tax. A Partnership Return is due on March 15, the same tax deadline for a Corporation. A critical component to a successful Partnership is laying out and agreeing to focused and detailed written Partnership Agreement, There are 3 types of Partnerships 1. General Partnership. The Partnership agreement outlines, how the percentages, profits, liability and duties are divided amongst the Partners. If there is an equal Partnership the profits, duties and ownership are divided equally among the partners. 2. Limited Partnerships Is more complex than a simple Partnerships. With Limited Partnerships, partners can have limited liability as well as limited input into management decisions. Limited partnerships can be attractive to short term investors. 3. Joint Ventures. These are similar to general partnerships, but only for a limited time and usually for a single project. It can be setup as an ongoing partnership if the venture continues but the JV has to file as such.

  • What are the advantages of a Partnership?

    Like a Sole Proprietorship, a Partnership is easier and much less costly to setup and run than a Corporation. In addition, Partners can pool resources to help secure credit or simply share the financial burden of starting a Partnership. Partners can leverage their unique skills and resources as complimentary pieces to running and managing the Partnership. Finally, Partnerships have the opportunity to offer employees the chance to become a Partner, thus providing a great incentive for employees.

  • What are the disadvantages of a Partnership?

    Like a Sole Proprietorship, there is no liability protection. Partners are personally liable for the debt of the Partnership and action of all the Partners. In addition in most situations Partners are not allowed to take W2 wages and have to pay self-employment taxes.