Sole proprietor vs corporation?

Forum|Forum|1 year ago
May 22, 2024
2 replies
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My independent consulting sole proprietorship has grown into a full-time lucrative income stream. I am maximizing my deductions but still pay high income taxes. I am seeking advice as I reconfigure my business into an S-corp, LLC, etc. My business would still remain with only me as an employee. Do you recommend any materials to review as I ponder my options, tax sheltering, etc.?

Ask the Experts - Biz Tax - May 2024

LindaSh

Congratulations on the success of your business. There are a number of pros and cons to each type of business structure which may be available to you. It is recommended that you seek the advise of an attorney and a tax expert who will be able to prepare a tax analysis of your business now along with growth projections. They will be able to provide you details as to which structure would best fit your financial needs. So that you can have an idea of what type of questions to ask the attorney, here is a link to an IRS site which is recommended that you read prior to meeting with any such experts: https://www.irs.gov/businesses/small-businesses-self-employed/business-structures

DrSeanAuthor

Thank you! Are there any current reading materials that guide the growth of sole proprietorships into more complex business structures?

Michele C1

The SBA actually has a pretty comprehensive resource here.

Check it out.

CA_Tax_Man

Corporations vs Sole Proprietorship….

Corporations:

-Require filing with the Secretary of State

-Annual payments to the SOS and submission of a statement of information

-Minimum tax payments are required annually whether your business was operating or not.

-Failure to comply with any of the above requirements, your business will be subject to suspension with the Secretary of State (if your entity is sued whilst having a suspended status, you automatically lose)

-If your entity is sued, it will have little impact on you personally. Worst case scenario, you can refile with the SOS using a different entity name (you can add a “.” or and “Inc” to your current DBA)

-All transactions that are made for the business need to be processed using a separate banking account. In the event of an audit, you will forfeit your ability to deduct any expenses that were not conducted on the business account l.

Sole Proprietorship:

-If you’re entity is sued, the lawsuit will impact your personal assets. It’s just like you’re getting sued personally.

-no requirements to file anything With the secretary of state and minimum annual tax

-ability to have business transactions on personal accounts