We can help you navigate the complex legal requirements of setting up your own business entity, including registering the business with the state Department of Financial Institutions, setting up corporate record books, organizing minutes and bylaws, and designing LLC operating agreements.
We are also happy to advise you on setting up your business, as well as an accounting systems and payroll in Madison, WI, that will work for your business both now and in the future. We can provide QuickBooks support and training and tax planning strategies.
Corporations, Partnerships and LLC’s
We offer tax return preparation for partnerships, corporation and LLC’s. This would include forms 990, 1120, 1120S, 1065 and Schedule C which is part of your personal tax return.
How do I start a new business?
We help you set up a business entity which includes creating an Employer Identification Number, registering the business with the WI Department of Financial Institutions, and creating LLC operating agreements or corporate record books (organizational minutes & bylaws) for the business entity.
What type of entity should I set up?
We can help you determine which type of business entity will best suit your particular needs. There are advantages and disadvantages to each type of entity. The following table is an overview of some of the issues to consider when setting up a new business.
|Liability Protection||No||No; All partners are jointly liable for actions of other partners||Yes||Yes||Yes|
|Number of Owners allowed||1||At least 2, no top limit||A maximum of 75||No limit||No maximum; 1 member LLC is allowed except in MD and Wash. DC|
|How is income taxed?||Owners pay tax on personal return.||Profits/losses flow through to partners; taxes paid on personal returns||Profits/losses flow through to shareholders; taxes paid on personal returns||Corporation pays tax on profits; owners pay tax when cash or property is distributed||Profits/losses flow through to partners; taxes paid on personal returns|
|Deduct losses on personal returns?||Yes||Yes||Yes||No||Yes|
|Avoid payroll paperwork?||Yes||Yes||No||No||Yes|
|Special allocations of income or expenses among owners?||Not applicable||Yes||No||No||Yes|
Is a written agreement advisable when starting?
Some of the advantages for each business entity:
Sole Proprietor: Easy to set up, easy to run, easy to understand. This is a good choice for first-time entrepreneurs. You can deduct a portion of your home used as an office to operate your business. It is the easiest and quickest to get out of.
Partnership: This is a good way to participate in a venture with other individuals and not have to deal with payroll issues. The responsibilities can be divided between the different partners and the income and loss percentages can vary from partner to partner. The partners have the flexibility to set up agreements with many variables from partner to partner.
S Corporation: Social Security and Medicare taxes are not paid on dividends and or profits from the corporation to the shareholders. It is desirable from the IRS perspective that the shareholders pay themselves a wage as an employee of the S Corporation.
C Corporation: Health insurance is 100% deductible for employees including shareholders. You have the potential to provide fully deductible medical reimbursements and fringe benefit plans for all employees and shareholders. Net profits of the C Corp up to $50,000 annually are taxed at only 15%.
LLC: Owners get the limited liability features of a corporation combined with the income splitting flexibility of a partnership. One member LLC’s can report their income on Schedule C of their personal tax returns.
Some of the disadvantages:
Sole Proprietor: Unlimited personal liability. Self employment tax of 15.3% is due on net income up to $97,500. This amount goes toward your personal social security.
Partnership: Liability for the financial actions of all your partners in the partnership. Ordinary income from the partnership is subject to the maximum self-employment tax. Tracking of the partners’ capital account balances can be complicated.
S Corporation: You cannot fully deduct your own health insurance or benefit plan costs- only those of employees. You cannot take a home office as a shareholder. Any home office deduction would be taken as an employee business expense on the personal return and limited by income and 2% of AGI.
C Corporation: Any losses from the C Corp are carried over within the C Corp and not deductible on your personal tax returns.
LLC: Owners profits are subject to Self-employment tax at the rate of 15.3% on net income up to $97,500, and at 2.9% for incomes over that amount.
If you have questions or comments about this topic and how it relates to your situation, contact us NOW.
Call today to learn more about how your organization can benefit by partnering with Consulting Services for all of your tax, accounting and financial planning needs.