| Call Now Open 24 Hours 877-285-0958 |
incsmart.biz
| Disclaimer: Please note that IncSmart is not a law firm or an accounting firm. If you seek legal or tax advice, we recommend that you hire an attorney or a CPA. |
Home | Contact Us | Careers | About Us © 2005 IncSmart Company. All rights reserved. |
Accountants and Bookkeepers - You can be a hero to your
clients. You are their first line of defense when it comes to tax
savings and asset protection.
We can work together
info@incsmart.biz
clients. You are their first line of defense when it comes to tax
savings and asset protection.
We can work together
info@incsmart.biz
?
I have a client with a small business, and I have wondered whether
they should become an S Corporation, or a Limited Liability Company.
they should become an S Corporation, or a Limited Liability Company.
Why Do Businesses Incorporate?
sole proprietor, people are generally personally liable for any business
debts they incur or claims that are made against the business.
If the business is a corporation, though, and that corporation
gets sued, goes bankrupt or otherwise can't meet its financial
obligations, the corporation's creditors may be prevented from getting
access to personal assets (for example, their home).
owners. The corporation should pay a salary, on which they will pay
individual income tax. The corporation will receive a deduction for the
salary on its tax return, but they will include the salary in their taxable
income.
S Corporations
They are designed to allow corporate profits and losses to pass almost straight through the
corporate entity to the individual shareholder. If you're considering incorporating to limit
their personal liability and if dividing income between the corporation and the personal
income would not really save them much in taxes, S Corporation tax status would be
beneficial.
If they expect losses in the first several years after incorporating, go for the S Corporation,
because these losses will pass directly through to them, as a shareholder, and they can
use them to offset other types of income on the individual tax return (provided that they
have sufficient investment in the business and actively participate in its operations).
Limited Liability Companies
An LLC will protect managing owners from personal liability for business debts. An LLC will
also
What Next?
If you're considering telling them about incorporating a business or forming a limited liability
corporation, prepare an income tax projection under each scenario covering different
income and loss generation situations to paint a clear picture of their tax circumstances.
This process will help them decide which form of business will be best for their
circumstances. Call IncSmart.biz and let us work closely with you for all your clients. We
always refer our clients to their accountants and bookkeepers for advice. You should
never be out of the loop. So be a HERO!
- To avoid or limit any personal liability for uninsured business claims
sole proprietor, people are generally personally liable for any business
debts they incur or claims that are made against the business.
If the business is a corporation, though, and that corporation
gets sued, goes bankrupt or otherwise can't meet its financial
obligations, the corporation's creditors may be prevented from getting
access to personal assets (for example, their home).
- To save on taxes
owners. The corporation should pay a salary, on which they will pay
individual income tax. The corporation will receive a deduction for the
salary on its tax return, but they will include the salary in their taxable
income.
S Corporations
They are designed to allow corporate profits and losses to pass almost straight through the
corporate entity to the individual shareholder. If you're considering incorporating to limit
their personal liability and if dividing income between the corporation and the personal
income would not really save them much in taxes, S Corporation tax status would be
beneficial.
If they expect losses in the first several years after incorporating, go for the S Corporation,
because these losses will pass directly through to them, as a shareholder, and they can
use them to offset other types of income on the individual tax return (provided that they
have sufficient investment in the business and actively participate in its operations).
Limited Liability Companies
An LLC will protect managing owners from personal liability for business debts. An LLC will
also
- Avoid limits on the number of members in your LLC, and on the types of members
your LLC may have. - Divide taxable profits and deductible losses in any manner the shareholders agree.
By contrast, in an S Corporation, the division must be based upon the relative stock
ownership percentages of the shareholders. - Profits and losses from LLCs pass directly through to its members for tax purposes.
What Next?
If you're considering telling them about incorporating a business or forming a limited liability
corporation, prepare an income tax projection under each scenario covering different
income and loss generation situations to paint a clear picture of their tax circumstances.
This process will help them decide which form of business will be best for their
circumstances. Call IncSmart.biz and let us work closely with you for all your clients. We
always refer our clients to their accountants and bookkeepers for advice. You should
never be out of the loop. So be a HERO!