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Business Types

Overview, #101 Summary of Tax Brief There is no one legal structure that’s best for all small businesses. Whether you are better off beginning as a sole proprietor or choosing one of the more complicated organizational structures such as partnership, corporation or limited liability company depends on the business size, profitability of your business, how many people will own it and whether it will face liability risks not covered by insurance. In addition, as your business grows…

Sole Proprietorship, #102 Summary of Tax Brief If you are starting and running a business by yourself, you will be a sole proprietor unless you form a corporation or an LLC. A majority of the small businesses in the United States are operated as sole proprietorships. This form of business is usually chosen by the one-person business in which the owner and worker are the same person, although sole proprietorships can have employees. The primary advantage is the…

Partnership, #103 Summary Running your co-owned small business as a partnership is often simpler and less expensive than incorporating or forming an LLC. A partnership is a business with more than one owner that has not filed papers with the state to become a corporation or an LLC. There are two basic types of partnerships – general partnerships and limited partnerships. …

Corporation, #104 Summary One of the main advantages of incorporating is that the owner’s personal assets are protected from creditors of the corporation because the corporation is considered a separate legal entity. Although a corporation usually has more than one owner, it is possible for only one individual to create and own 100 percent of a corporation. …

S Corporation, #105 Summary An S Corporation is an ordinary business corporation that has elected to be taxed under Subchapter C of the Internal Revenue Code. It is not taxed on its earnings as a corporation. Instead, its earnings are passed through to its shareholders for tax purposes. Why S Corporations Exist …

Keeping Records, #106 Summary While it’s important to understand the tax implications of business expenses, as an effective tax strategist and a new business owner (or not so new), you also need to know that it is as important to keep record of your business activities. The organization of tax records is very important. It may mean either the success or failure of your business. A well-structured accounting system and a systematic way of recording receipts and…

Employees vs. Independent Contractors, #107 Summary of Tax Brief It is critical that you correctly determine whether the individuals providing services to your business are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors. If you incorrectly classify an employee as an independent contractor, you…

Business Profitability Formula, #108 Summary Financial formulas or ratios are a valuable and easy way to interpret the numbers found in business profitability statements. Such analysis can help to answer critical questions such as whether the business is carrying excess debt or inventory, whether customers are paying according to terms, whether the operating expenses are too high and whether the company assets are being used properly to generate income. Generally, financial ratios are categorized into five types: liquidity,…