Be Entrepreneur- Do Great
When you’ve decided to start your own business and are ready to get your feet in the water, you need to be incorporated as a business. Opening your own business is exciting, thrilling, and challenging at the same time!
The first phase is to get registered as a business; making the right decision about choosing a company type is the most important action. We have seen many situations where people were getting ready to expand their businesses but were forced to shut down their existing companies due to inappropriate entity types. If you think your business has fantastic potential then use that potential while it is there.
We, with our IRS Enrolled Agents, have expertise in evaluating the best entity type according to your scenario in all 50 states of America. We will have a detailed discussion about your goals, finances, nature of the business, human capital, and your own skills/expertise in order to suggest the best option for you.
Here are different types of business structures:
Self- Employed / Sole-Proprietorship
A sole proprietor is someone who owns an unincorporated business by himself or herself. However, if you are the sole member of a domestic limited liability company (LLC), you are not a sole proprietor if you elect to treat the LLC as a corporation. Most self-employed individuals file Form 1040 or 1040NR if they are considered non-resident.
Single Member LLC – Pass-through Entity
A Limited Liability Company (LLC) is an entity created by state statute. Depending on elections made by the LLC and the number of members, the IRS will treat an LLC either as a corporation, partnership, or as part of the owner’s tax return (a “disregarded entity”). A domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and elects to be treated as a corporation. For income tax purposes, an LLC with only one member is treated as an entity disregarded as separate from its owner, unless it files Form 8832 and affirmatively elects to be treated as a corporation. However, for purposes of employment tax and certain excise taxes, an LLC with only one member is still considered a separate entity.
Owner of Single-Member LLC
If a single-member LLC does not elect to be treated as a corporation, the LLC is a “disregarded entity,” and the LLC’s activities should be reflected on its owner’s federal tax return. If the owner is an individual, the activities of the LLC will generally be reflected on:
- Form 1040 or 1040-SR Schedule C, Profit or Loss from Business (Sole Proprietorship)
- Form 1040 or 1040-SR Schedule E, Supplemental Income or Loss
- Form 1040 or 1040-SR Schedule F, Profit or Loss from Farming
An individual owner of a single-member LLC that operates a trade or business is subject to the tax on net earnings from self-employment in the same manner as a sole proprietorship.
If the single-member LLC is owned by a corporation or partnership, the LLC should be reflected on its owner’s federal tax return as a division of the corporation or partnership.
Multi-Member LLC / Partnership
A Limited Liability Company (LLC) is an entity created by state statute. Depending on elections made by the LLC and the number of members, the IRS will treat an LLC either as a corporation, partnership, or as part of the owner’s tax return (a disregarded entity). A domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it elects to be treated as a corporation. For income tax purposes, an LLC with only one member is treated as an entity disregarded as separate from its owner unless it elects to be treated as a corporation. However, for purposes of employment tax and certain excise taxes, an LLC with only one member is still considered a separate entity.
Generally, LLCs are not automatically included in this list and are therefore not required to be treated as corporations. Pursuant to the entity classification rules, a domestic entity that has more than one member will default to a partnership. Thus, an LLC with multiple owners can either accept its default classification as a partnership or elect to be classified as an association taxable as a corporation.
Partnerships file Form 1065 on a federal level for tax filing purposes.
In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation’s capital stock. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. A corporation can also take special deductions. For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes, and distributes profits to shareholders.
The profit of a corporation is taxed to the corporation when earned and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.
C-Corps file Form 1120 with the IRS.
S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.
To qualify for S corporation status, the corporation must meet the following requirements:
- Be a domestic corporation
- Have only allowable shareholders
- Maybe individuals, certain trusts, and estates and
- May not be partnerships, corporations or non-resident alien shareholders
- Have no more than 100 shareholders
- Have only one class of stock
- Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations).
S-Corps file Form 1120S.
We can help you with arranging registered agent address services in all 50 states.
We also provide Registered Agent Services for Illinois Corporations & LLCs.
IT WOULD BE A PRIVILEGE TO CATER TO YOUR NEEDS OF FORMATION OF YOUR
OWN FIRST COMPANY IN THE UNITED STATES.
We provide LLC Formation Services in Alabama, LLC Formation California, LLC Formation Delaware, LLC Formation Florida, LLC Formation Illinois, LLC Formation Indiana, LLC Formation Kansas, LLC Formation Kentucky, LLC Formation Louisiana, LLC Formation Maryland, LLC Formation Massachusetts, LLC Formation Nevada, LLC Formation New Hampshire, LLC Formation New Jersey, LLC Formation New Mexico, LLC Formation New York, LLC Formation South Dakota, LLC Formation Texas, LLC Formation Washington, LLC Formation West Virginia, LLC Formation Wyoming, LLC Formation in all 50 States.