When you are starting a small business, it is important to consider all of the tax implications. Proper planning when you start your business can save you time and money. Contact an attorney to discuss how to best prepare for all of the tax issues that go along with a business entity.
Dedicated Attorney with Extensive Tax Planning Knowledge
At the Irvine, California, Law Offices of Scott Kauffman, clients in need of tax counsel work personally and directly with a dedicated lawyer who has focused exclusively on taxation, tax law, and tax planning for well over 20 years. If you are considering incorporating your business and want to understand the tax implications of choosing a particular entity — or have questions about other high-stakes tax matters — please contact attorney Kauffman today.
Thank you for contacting The Law Offices of Scott Kauffman. Your message has been sent.
Call us now
or use the form below.
Respected tax attorney Scott Kauffman — also a published novelist — devotes all his professional energies to helping people with tax issues, whether due to a problem such as a pending audit or in the course of planning for the future. In addition to his Juris Doctor degree, attorney Kauffman has two tax-related L.L.M. (Master of Laws) degrees, and his knowledge and reputation for integrity are tremendous benefits for many clients.
Throughout Orange County, Riverside and San Bernardino counties and beyond, small business owners and entrepreneurs frequently consult tax attorney Scott Kauffman as they choose between entities such as S corporation, C corporation, LLC or a form of partnership, or sole proprietorship. The tax planning implications of this decision and others involving your business may prove critical in the future, and we urge you to contact the Law Offices of Scott Kauffman for a consultation.
Business Organization and Taxation
When deciding which type of entity is right for your business, it is important to consider the tax implications. Each entity is subject to different taxation requirements. The most common types of domestic business entities are sole proprietorships, partnerships, corporations and limited liability companies. A tax attorney at Scott Kauffman, A Professional Law Corporation in Irvine, California, can help you weigh the tax advantages and disadvantages of the different business forms.
Sole Proprietorship
A sole proprietorship is an unincorporated business owned by one person. This type of entity does not have any special state formation requirements and the owner does not have to file any paperwork with the government. A sole proprietorship does not limit the owner's liability in any way. The owner has complete control over the management of the business and retains all profits of the business. For tax purposes, all tax information, including income and losses of the business, is disclosed on the individual's tax filing. There is no additional business tax filing required. A sole proprietorship uses the calendar year for its tax year. If the sole proprietorship does business in more than one state, the business' income will be divided up among those states to determine how much tax the business must pay in each one.
Partnership
The Uniform Partnership Act defines a partnership as "an association of two or more persons to carry on as co-owners a business for profit." There are several types of partnerships including general partnerships, limited partnerships and limited liability partnerships. A partnership is not treated as a separate entity for tax purposes. Under subchapter K of the Internal Revenue Code, partnership income, gains, losses, deductions and credits pass through the partnership and are accounted for by individual partners on their individual tax returns. Partnerships generally use the same tax year as the majority of the partners. Partnerships that do business in more than one state will divide up the income among those states and pay a proportional amount of tax in each one. While the partnership is not taxed, it still must file an informational tax return. It must also provide partners with information they need to file their personal tax returns.
Corporations
There are two main types of corporations; the C corporation and the S corporation. The traditional or regular corporation is known as a C corporation, so named because it is subject to taxation under subchapter C of the Internal Revenue Code. The C corporation is subject to two levels of taxation. The corporation itself pays taxes on any gains, and then the stockholders personally pay taxes on the income that is passed on to them by the corporation. C corporations can carry net operating losses back 5 years and forward for 20 years.
The rate of taxation for the corporation depends on the amount of income the company realizes; the top federal rate is about 35%, while the top state tax rate is about 10%. If a corporation does business in more than one state, it will divide up its business income among those states and pay the appropriate amount of tax in each state. A C corporation can adopt any tax year, it does not need to use the calendar year as its tax year.
An S corporation is a regular corporation that qualifies and elects to be taxed under subchapter S of the Internal Revenue Code. Probably the most important difference between a C corporation and an S corporation is that a C corporation is subject to double taxation while an S corporation is not. Income of an S corporation is not taxed at the corporate level. Shareholders account for all income, gains, losses, deductions and credits on their individual tax returns. The tax year for an S corporation is the calendar year.
In order to be classified as an S corporation, all shareholders must elect to have the business taxed as an S corporation. In addition, the corporation must meet the definition of a "small business corporation." A corporation is a small business corporation if it has fewer then 75 shareholders. These shareholders must be individuals, estates or certain qualifying trusts. Shareholders must also be U.S. citizens and residents.
Limited Liability Company
A limited liability company (LLC) is a relatively new business form. Each state has laws that allow for the formation of an LLC. LLCs are separate legal entities like corporations, but are treated as partnerships for tax purposes so they avoid the double taxation faced by corporations. Thus, there is no corporate tax on the earnings of the LLC, and each individual owner is personally responsible for the LLC's taxes and must report any gains or losses on their individual tax returns. Even though LLCs do not pay federal income taxes, some states do tax LLCs.
Conclusion
With all of these options available to your business, it is crucial to examine the tax implications of each form and select an entity that fits your business objectives. A tax attorney at Scott Kauffman, A Professional Law Corporation in Irvine, California can help you choose the one that is best for your business.
Copyright ©2009 FindLaw, a Thomson Business
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
