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Attributes of different entities - Choosing a Business Entity
When launching a new venture, one of the first decisions you will make is determining which structure, or "entity," your business will assume. Depending on which entity you choose, the decision may affect your own and your business's tax situation, the level of protection your personal assets (including your home) receive, and the amount of control you have over the business.
Following is a brief primer to help guide you in your choice. You may want to consult a qualified attorney or financial professional before making your final decision.
Formalities of existence Some types of entities are simple and inexpensive to form and maintain, while others must meet specific requirements. If you want to keep the overall management of your business as simple as possible, you might choose an entity with few formalities.
The latest $1.9 trillion federal relief package is now law.
While the COVID-19 pandemic is finally slowing down, the economic damage that it caused lingers on. In order to relieve the financial burdens facing many taxpayers and accelerate recovery, Congress has passed the American Rescue Plan Act (the Act). The Act is a $1.9 trillion relief package that will affect millions of individuals and businesses.
A summary of the Act's key tax provisions follows.
Tax Treatment of Fringe Benefits
The term “fringe benefit” refers to any benefit provided to an employee that is in addition to money. All benefits provided to an employee are taxable unless the law specifically excludes or defers tax on the benefit. Thus, a fringe benefit can either be taxable, tax-deferred, or excluded from taxation.
The personal use of an employer-provided vehicle is an example of a taxable fringe benefit. An employer contribution to a qualified retirement plan on behalf of the employee is an example of a tax-deferred fringe benefit. Employer-provided health insurance for an employee is an example of a tax-free fringe benefit.
New Business Income Deduction
The Tax Cuts and Jobs Act is the biggest federal tax law change in over 30 years. This is a significant change affecting qualified business income from a partnership, S corporation, LLC, or sole proprietorship. Note: Except where noted, the change is effective for tax years 2018–2025.
Tax Cuts and Jobs Act: Impact on Businesses
The Tax Cuts and Jobs Act, a $1.5 trillion tax cut package, was signed into law on December 22, 2017. The centerpiece of the legislation is a permanent reduction of the corporate income tax rate. The corporate rate change and some of the other major provisions that affect businesses and business income are summarized below. Provisions take effect in tax year 2018 unless otherwise stated.
Introduction to the S Corporation - Distributions
What are S corporation distributions?
Distributions from an S corporation occur when a corporation makes a payment of cash or property to its shareholders based on their stock ownership. Because S corporations serve as conduit (pass-through) entities, distributions from S corporations more closely resemble partnership distributions than C corporation distributions. C corporation distributions, of course, usually take the form of taxable dividends.
To determine the tax consequences of distributions from an S corporation, it is important to know first whether or not the S corporation has accumulated earnings and profit (AE&P). AE&P is important because a distribution from AE&P will result in a taxable dividend to a shareholder. An S corporation does not generate earnings and profit as such and will not have AE&P unless the company existed originally as a C corporation or acquired a C corporation. To simplify matters, this discussion will presume that there is no AE&P. If there is a possibility that your C corporation will make an S election, contact an accountant or tax attorney to learn more about AE&P.
Introduction to the S Corporation - General Rules
What is an S corporation and how is it taxed?
In effect, an S corporation conducts business as a regular corporation but is essentially taxed as a partnership. Unlike a C corporation, the S corporation generally does not pay a corporate tax on income. Rather, the S corporation passes income, losses, deductions, and credits through to its shareholders, who report the items and calculate the tax on their individual returns.
Starting a Business Checklist
Disclaimer: This checklist is provided to help you start your business. Due to the various policy and legislative changes that occur frequently, some of these steps may not apply to your business. Additionally, there may be other steps that are required by your business that are not covered here. As always, legal counsel is strongly advised.
- Choose a business. Research the business idea.
- Consult your tax professional regarding tax aspects of various business entities.
- Consult an attorney regarding federal and state laws governing creation, ownership, and operation of the entity.
- Write a business plan and marketing plan. Choose a business name.
- See if the business name is available for use as a domain name. Register the domain name even if you aren't ready to use it yet. Choose a location for the business.
- Check zoning laws.
- File partnership, corporate or limited liability company papers.
- Contact the Internal Revenue Service to apply for your federal identification number and for filing your federal tax schedules.
- Apply for state employee identification number if you will have employees. Find out about worker's compensation if you will have employees.
- Apply for sales tax number if needed. File state tax forms.
- Check to get any required business licenses or permits. Register or reserve federal trademark/service mark.
- Register copyrights.
- Apply for patent if you will be marketing an invention.
- Order any required notices (advertisements you have to place) or your intent to do business in the community.
- Have business phone phone installed. Check into business insurance needs.
- Get adequate business insurance or a business rider to a homeowner's policy.
- Get tax information such as record keeping requirements, information on withholding taxes if you will have employees, information on hiring independent contractors, facts about estimating taxes, etc.
- Open a bank account for the business. Fund the entity.
- Hold all necessary organizational meetings to elect officers and directors. Have business cards and stationery printed.
- Purchase equipment or supplies. Order inventory, signage and fixtures. Get an email address.
- Find a web hosting company. Get your website set up.
- Have sales literature prepared.
- Place advertising in newspapers, online or other media if yours is the type of business that will benefit from paid advertising.
- Call everyone you know and let them know you are in business.