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 and LLC operating agreement or corporate record book (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.

	BUSINESS ENTITY
THE ISSUE	Sole Proprietor	Partnership	S Corporation	C Corporation	LLC
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?	Not necessary	Yes	Yes	Yes	Yes

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 $118,500 for tax year 2015 and 2016. 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 $118,500 for tax year 2015 and 2016, 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.

Divorce Tax Planning

Divorce is never easy. There are many difficult decisions to be made. When a couple does not perform due diligence and run the possible taxation scenarios when they are dividing assets, determining support payments and committing to a financial contract that takes them years into the future, they can miss opportunities for each party to come out as best as they can in terms of taking advantage of the tax laws that apply.

One of the decisions you will be making is how the finances will be managed during the divorce proceedings and after the divorce is final. Who will pay for what? What is fair? How does my state law affect me? How do these decisions affect me in terms of taxation? These are questions we can answer.

The other question you will have from a tax standpoint is “how should we determine who takes ownership of which assets?” We can help you with your options and present the pros and cons in such a way that you will know what you are agreeing to before the divorce is final.

Email or Call today 608-233-9769