Proven Strategies - Accounting Services

What is the best organizational structure (Legal and Tax) for your business?  As with many decisions  to be made in a business, the best answer depends on many factors.  There are significant legal and tax consequences involved in the choice of entity in which to operate one's business since it requires a careful balance of several considerations that are unique to the particular business and individual investors involved.  We can help you ask the right questions and evaluate which Legal and Tax structure would be most advantageous to your business at its current stage in life.  And as the business changes, the best structure (both Legal and Tax) may change as well.

Legal Entity Definitions

Sole Proprietor - Single owner business often operated in the sole owners name or a trade name filed with the resident state.  Simplest form of doing business but provides not liability protection to the owner for the debts and obligations of the business.

Limited Liability Company - A separate legal entity from the individual business owner(s).  Single or multiple member company formally registered as an LLC within the state where it is doing business which afford owner(s) both personal liability protection for the debts and obligations of the company and the opportunity to be taxed in many different ways including as a sole proprietor (single owner), partnership (multiple owners) or Corporation ("C" or "S").

Partnership - More than one individual operating a business with or without a formal operation agreement. There are various partnership arrangements available to accommodate various business models. Managing partners are personally liable for debts and obligations of the company.     

Corporation - A separate legal entity from the individual business owner(s). Single or multiple member company formally registered with the Secretary of State in the state where they are doing business. 

Tax Entity Definitions

Sole Proprietor -  Single owner business.  Owner/taxpayer pays self-employment tax on net income of business.  Files a Schedule "C" for the business with their individual 1040 tax filing.

Partnership - Multiple owner "pass through" business.  Partnership files a separate information return (Form 1165) that identifies net income of Partnership but does not pay taxes but rather "passes through" the income to its partners by way of a Partnership K-1 to each partner that identifies partners share of income and expenses.  Each partner records partnership income on 1040 and pays self-employment tax on their share of income. 

"C" Corporation - One or multiple owners (shareholders).  Corporation files a separate tax return (Form 1120) and pays taxes on corporate net income. Owners paid salary, additional compensation comes in form of dividends that is taxable to owners as income but not deductible to corporation as an expenses (double taxation).

"S" Corporation - One or multiple owners (shareholders) "pass through" business.  Corporation files information return (Form 1120-S) and issues S Corporation K-1 to owners for their share of net income.  Net income of business "pass through" to owners personal 1040 tax return.  Active owners deemed employees of the corporation and therefore pay Social Security and Medicare taxes on owner wages but do not pay self-employment taxes on "pass through" income to owners.