Selecting the Right Structure For Your Business Advice from CPAs

Getting Started How should you operate and structure your business? It can be difficult, so ask for help Consult with a CPA to learn: –Filing and compliance issues –Tax benefits and detriments

Factors to Consider Tax and non-tax issues, including: –Ownership and continuity changes –Legal liability protection –Federal and state income taxes –Social Security taxes –And more

Structuring for Success Sole Proprietorship Partnership – General and Limited Corporation – S or C Limited Liability Company

Sole Proprietorship One-person business Not registered with state as a limited liability company or corporation Some states require license or permit

Sole Proprietorship Owner is personally liable Simplest for tax purposes Business ceases to exist with death of owner

Partnership A relationship between two or more persons Not classified as a corporation Draft agreement to address potential concerns Hire an attorney to write up partnership agreement

Partnership Two types: General and Limited General –Responsible for partnership liabilities, no matter which partner incurred them Limited –Only liable to the extent of partnership investment

Partnership Buy-Sell Agreements cover: –Who can buy a departing partner’s share? –The events that will trigger a buyout –What determines the price for a partner’s interest

Corporation Considered separate from owners and managers – independently liable and legal Owner’s personal assets are protected No limit on number of shareholders in C Corporation

Corporation Small Corporation –Creditors may require guarantees C Corporation –The company is taxed Personal Service Corporation (PSC) –Engaged in performance of personal services S Corporation –S status with the IRS under state law

Limited Liability Company Taxed as a partnership, but provides members with liability protection like a corporation Only the LLC’s assets are at risk Pass-Through Entity –Income passes through business to LLC members

Limited Liability Company Operating Agreement –Determines how income is allocated among members –Gives more flexibility than S Corporation File Form 1065 –An informational return with the IRS –Reports on member’s income tax return

Tax Considerations Partnerships, S and Personal Service Corporations: –Must conform taxes to that of their owners –May use tax year rather than calendar year on Form 8717 Avoid a year-end that is the busiest time for your company

Tax Considerations Sole Proprietorship –Reports on Form Schedule C on Federal Form 1040 Partnership –“Pass-Through” entity; Form 1065 and Schedule K-1 S Corporation –Taxed like a partnership C Corporation –Two levels of taxation

Compensation and Payroll Taxes Key issue facing small businesses: –Wage income v. Self-employment income –Make the distinction –Sole proprietors may prefer to pay themselves in the form of wages

Thank you and good luck with your future financial endeavors.