Day 5: S-Corp or LLC??

ATTENTIONAL ALL SMALL BUSINESS OWNERS: If you are thinking of filing your business as a new entity (ie switching from Sole Proprietor to an S-Corp) then JANUARY 1, 2008 is the DAY to do it!

Why? Because then you'll be the same entity the whole year and not have to fill out all kinds of different forms for both entities!

Not sure what you should be? Here's a quick run-down of the differences below.
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• Sole Proprietorship - Easy to form, taxed at individual rate, no additional taxes to file (use Schedule C), losses apply against other income, no legal separation between company and personal assets.

• Partnership - We highly recommend against this if you are in business with another individual. Instead, look into filing as an LLC or S-Corp.

• Corporation - We recommend against this for small businesses because of the double taxation (you will be taxed at a corporate level and individual level). Instead, look to filing as an LLC or S-Corp.

• S Corporation - Taxed at individual tax rates, losses can be applied against personal or spouse income, legal separation between company and personal assets, allows you to avoid paying social security on all of your earnings (you can take dividends in addition to a salary), must file a corporate tax return, more paperwork than an LLC

• LLC - Limited Liability Company - Taxed at individual tax rates, losses can be applied against personal or spouse income, legal separation between company and personal assets, easier to set up than an S corp, not recognized the same in all states, single-owner LLC pays self-employment tax. Recommended for businesses with more than one partner for ease of distributing dividends.