This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Starting a Business? Review Tax Implications

BERKELEY HEIGHTS, N.J. ( TheStreet) -- New business owners often pay lip service to mundane details such as entity formation -- meaning how your business will be structured for legal and taxation purposes -- but I urge all would-be business owners to work with legal and financial professionals well-versed in the choices.

A new business can be set up as a sole proprietorship, general partnership, limited liability partnership, single-member LLC, multimember LLC, S corporation or C corporation. Selecting the right legal entity really is unique to each business and depends on the circumstances.
Before starting a business, it's good to figure out what kind of business it'll be from a tax and liability perspective.

A person who starts a business without even making a choice has actually chosen to be a sole proprietor. A sole proprietorship is simple from an administrative perspective and does not require the services of an attorney to form, but generally makes sense only in the simplest of circumstances. The downside is you have unlimited exposure to business problems on a personal level. For tax purposes, an owner reports the tax results on their personal income tax return on IRS Schedule C and typically needs to make quarterly estimated personal income tax payments. In addition, the sole proprietor pays self-employment taxes (FICA) calculated on his or her self-employment income when filing an annual tax return. If the sole proprietor has W-2 employees, payroll taxes and withholdings are handled like any other business entity.

A general partnership is when two or more people start a business. Each partner has unlimited personal liability in a partnership, including on professional malpractice. Even though a partnership pays no taxes, an informational partnership tax return is filed with the IRS on Form 1065. Each partner gets a K-1 from the partnership picking up their share of the partnership's results and will typically need to make quarterly estimated personal income tax payments. Partners also pay their self-employment taxes calculated on their partnership income when filing their personal return. If the partnership has W-2 employees they must handle payroll taxes and withholdings like any other business entity. To avoid the unlimited liability of general partnerships, many professionals such as doctors, lawyers and accountants form limited liability partnerships. A partner in an LLP is not liable for the malpractice of the other partners, but remains liable for their own acts.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.24 -0.99%
FB $118.19 0.65%
GOOG $699.50 1.00%
YHOO $36.00 -0.03%
TSLA $229.10 -1.40%


Chart of I:DJI
DOW 17,670.54 -80.37 -0.45%
S&P 500 2,050.43 -12.94 -0.63%
NASDAQ 4,728.1080 -35.1160 -0.74%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs