One of four-What Entity should I choose for my Business?

One of four-What Entity should I choose for my Business?

June 27, 2021
Share |

One of four-What Entity should I choose for my Business?

 What choices do I have when I start my business and what greatly influences the overall tax burden?  The choice you make well also involve non-tax factors.

 Some non-taxable items you should consider when you make a choice.

 Liability protection

  • Maintenance costs
  • Continuity of business
  • Capitalization & ownership
  • Exit strategy

 You have four basic entity types to choose from which one is the right fit?       

  • Sole proprietorship
  • Partnership
  • Corporation/ S Corporation
  • Limited liability company (LLC)

 You have decided on a corporation how is it Defined?

  A business entity organized under a federal, state, or Indian tribe statute

describing or referring to the entity as incorporated or as a corporation, body

corporate, or body politic. 

  • An association as determined by Treas. Reg. §301.7701-3. 
  • A business entity organized under a state statute describing or referring to the

entity as a joint-stock company or joint-stock association. 

  • An insurance company. 
  • A state-chartered business entity conducting banking activities if the FDIC or

similar federal statute insures any of its deposits.

1 Treas. Reg. §301.7701-3(a).

2 Treas. Reg. §301.7701-2(b).

  • A business entity wholly owned by a state or any political subdivision thereof or a

business entity wholly owned by a foreign government or any other entity

described in Treas. Reg. §1.892-2T. 

  • A business entity that is taxable as a corporation under a provision of the IRC

other than §7701(a)(3). 

  • A specific foreign entity listed in the regulation (also known as a “per se”

corporation). 

  • An entity created or organized under the laws of more than one jurisdiction 

What are the four general phases of operations for a C Corporation? 

Briefly the four general phases are: 

  1. Corporation formation
  2. Corporation operations
  3. Corporation distributions to shareholders
  4. Corporation dissolution 

When forming a corporation a person does not recognize gain or loss in the exchange of

property or cash for stock if, after the exchange, such persons are in control of the

corporation. Control means at least 80% of voting power and shares of the stock.

A corporation requires Annual minutes, compensation to shareholders/employees must be reasonable the IRS starts at the five and then it depends.

The five to consider are:

  1. Role in company
  2. External comparison
  3. Character and condition of company
  4. Conflict of interest
  5. Internal consistency

A corporation requires annual minutes, must keep good records of accounting books and records, payroll and any other ordinary or necessary items belonging to the corporation.

You are not the owner of the business your corporation is the owner, and you must fellow the rules or loose corporate status.

 

Book a call today and let’s discuss your options

Lillian Meyers CFP®, CDFA®, EA is a Tax Specialist, financial planner in North Bay Area, California helping clients live their best life through the use of financial planning, investment management, and other sophisticated financial options.