Starting your business is a big deal. You came up with the idea, found the funding that will get it off the ground, and are excited to get going. But before you can open the doors, you need to choose the business entity that you are going to run your business by. Choosing a business entity may not seem like it’s that important, but so much rides on this decision. How much legal liability you hold if there is a lawsuit, whether or not there are shareholders in the business, how the business will continue when you pass on, and how you are charged taxes all are based on your business entity.
If you are not sure which business entity is the right one for you, make sure to consult the professionals at S. Anderson’s right away. We can take a look at your business as well as any future plans you have for your business to help you come up with the perfect entity to get your business of the ground and help it to grow into the future.
Sole Proprietorship
The first business organization that you may consider is a sole proprietorship. This is a common form to use before it doesn’t take much to form and you as the owner will have complete control over how the business is run. You won’t have to work with other people to run the business or answer to stockholders on the decisions you make. In addition, the paperwork is much smaller, although there aren’t as many tax benefits of going with this option. If you do choose to go with a sole proprietorship, remember that you are held liable for any financial obligations for the business and your personal assets can be attacked.
Partnership
This option is similar to the sole proprietorship, other than there will be at least two people involved in running the business. Those in the partnership will agree to share in all losses or profits for the business. There is an advantage in this option in that the tax burdens for profits are not as prevalent on the tax return compared to the sole proprietorship, saving you some money in this way. The disadvantage is that each partner is going to be held liable for all of the financial obligations that go through the business.
Corporation
If you are looking for a way to avoid the legal obligations that the other two business entities hold, a corporation can be a good option for you. The corporation is going to be separate from the owners who founded it. The corporation can make profits, pay taxes, and is liable for its actions, but personal liability to the owners is taken away. The disadvantage of this system is that the record keeping and the costs to start up a corporation can turn a lot of small businesses away. Many people will choose to be incorporated, but this can have issues with double taxation. As you will see though, there are some options to get the benefits of corporation without all the extra paperwork.
For those who are considering a corporation for their business entity, come visit us at S. Anderson’s. We can take a look at your business and help you get set up as a corporation. If you need help with your tax records or bookkeeping, we have the experience to get this all handled for you as well so you can concentrate on more important matters in your business.
LLC
An LLC is a hybrid of a partnership and has gained a lot of popularity in recent years. Many business owners like this entity because they can get the benefits of a partnership and a corporation mixed into one. You will like the idea that losses and profits are passed to the owners without having to tax the business itself, but the owners are also going to be protected from personal liability if there is a lawsuit. This seems to have the best of both worlds, but one common issue is that this business is often double taxed, costing you a lot of money during tax season.
S Corporation
As a small business owner, you may find the S corporation is an attractive option. There are a lot of appealing tax benefits available while still giving you the liability protection that you need from a corporation. The losses and incomes will be passed on to the shareholders and these individuals will need to report the income on their tax return. This means that there will only be one level of taxes to pay at the federal level.
As an owner of an S corporation, if you don’t keep inventory, you will be able to use a cash method for accounting. This is easier compared to the accrual method and means that you are only taxed on income when you receive it. If you finish a project in 2015 but don’t get paid until early 2016, you won’t report the earnings until your 2016 tax return.
Of course, as a corporation, you will still have a lot of paperwork and tax files to go through, so make sure to hire the professionals at S. Anderson’s to help you get all this done properly this tax season.
Choosing the right business entity for your needs doesn’t need to be complicated. Contact Sharron Anderson at S. Anderson’s in Rancho Cucamo, CA to help you to find the perfect business entity to help your business get started out right.
