DISCLAIMER: What is included here are broad-stroke details about the various business structures (e.g. Sole Proprietor, LLC, or Corporation) available to you. Because of this, you should hire an attorney and an accountant to guide you on which business structure is right for you and your business.
One major decision to make in the beginning is how your business will be classified: sole proprietorship, corporation, or Limited Liability Corporation.
Although this section covers many of the key points needed to make your decision, be sure to meet with an accountant and attorney to discuss the structure appropriate for your business and financial situation.
The main differences between each structure primarily revolves around personal and tax liabilities, so know the pros and cons of each before making your selection.
IRS Publications
The Internal Revenue Service offers great pamphlets, publications, and downloadable forms at irs.gov. You may also call (800) 829-3676 to order forms and publications pertaining to your tax needs. Resources available include Your Business Tax Kit and Tax Tips Calendar for Small Businesses.
Although an accountant and attorney can guide you through the business structure appropriate for you, still take an active role in learning about tax liabilities and legal obligations beyond those funneled by your professional advisor.
Arming yourself with the right info will ensure you aren’t in the dark on topics relevant to operating your business.
Resume services are generally sole proprietorships or LLCs.
Sole proprietorships are easy to setup and maintain since business income is reported on the owner’s tax return, and the ability to utilize a cash method for accounting makes the process somewhat hassle free.
Businesses with higher sales oftentimes become corporations to reduce or eliminate owners’ tax liability. With the number of lawsuits hitting the courts, you may wish to entertain the extra fees, time, and paperwork needed to become a corporation. As more businesses shift to a home-based existence, and an increasing number of individuals filing lawsuits, it may be murky on exactly what assets can be lost. Check with your attorney if you feel this will be a concern for your business.
Sole Proprietorship
Sole Proprietorship — a business operated with one operator/owner; taxes are reported on individual tax return with an attached Schedule C to reflect profit or loss from the business.
Other forms to accompany the tax return include form 8829 to reflect expenses for business use of your home and form 6198 to reflect at-risk limitations.
The SBA.gov website offers answers to the questions you might have about starting a sole proprietorship. For example, what are the advantages and disadvantages of being a sole proprietor.
Sole proprietors are personally liable should a legal matter arise with the running of the business, which is definitely a huge disadvantage with this of business structure.
LLC
Limited Liability Company — an LLC offers many advantages, including limited liability to the business owner or owners.
Recognized for few disadvantages, an LLC structure seems to be the way to go for anyone going into business with a partner — though recent changes in LLC guidelines now make this business structure available to one-owner businesses.
Taxes are calculated as a sole proprietor, partnership, or a corporation; depending partly on the number of owners.
Talk to your accountant to determine whether there would be tax advantages for you for becoming an LLC.
C/S Corp
Corporation — C and S corporations possess a detailed list of advantages and disadvantages relative to tax reporting and exposure to liability.
Setting your business up as a corporation may not be practical if you plan to transfer business ownership or you’re seeking to pay limited taxes.
Discuss the corporation structure with your accountant.
Distinguishing the differences between each classification can be an extensive amount of red tape only your accountant can put in non-technical language.
