Tax advantages behind Corporations

LLC's
S corp
c corp
limited partnership
sole propiatorship

i read that depending on what you register under you can deduct things like internet/phone services, tuition ans seminar educational expenses, software and subscriptions, and more as business expenses.

I have an online business which means it would be very beneficial for me to have the above listed items as deductibles.

the problem is i don't know what to register under, or if i even should.

if there is any other information i should post to help you give me the proper advice feel free to ask.

thanks in advance

The reason for choosing a particular type of entity for your business designation with the state you are in is to first protect yourself from liability through LLC or S or C incorporation, all of which cost more than a sole proprietorship to set up. You have little advantage in a general partnership and NO real protection from liability. Certainly tax considerations are next in line, but all of these entity types can have those items you mentioned deducted as business expenses.

But let's get more certain about how these entities differ in terms of outlay based on how the state and federal taxes and yearly fees add up.

.S corp incorporation fees, profit is passed through to ownership along with expenses similar to sole proprietor, liability cannot pass to individual owners but you can lose your share value... this is a new area, and there is some concern the IRS may change some of the rules down the road. you have to create stock certificates and account for them

.c corp incorporation fees, taxed twice but at a lower rate as a corporation then personal tax liability is as a dividend on your personal 1040, liability cannot pass to individual owners but you can lose your share value. You have to create stock certificates and account for them

.limited liability company - partnership (LLC) high yearly state fees and setup fees, profits are passed through to each owner on a K form... after expenses after state takes a yearly percentage or fee, liability cannot pass to individual owners but you can lose the value in the company

.limited or general partnership (NOT LLC) setup fees, profit passed to owner after expenses and taxed at owner's rate, partners are personally liable for damages done by employees or partners

.sole propriatorship small state setup fee, may be state yearly fee, owner is personally liable for damages done by employees or partners, profit passed to owner along with expenses to be taken on owner's 1040

Furthermore, if you have to take profit and expenses on your personal 1040, you might find the alternative minimum tax will cost you the expense deductions.

Now, there are more rules as a C-corporation and it requires that you hold meetings and take minutes and file them with the state. I don't know all the things one has to do in this form, but it can be formidable to someone who just wants to do his business.

This is also true of the S-Corp, but you only have to do ONE meeting. S-Corp stands a good chance of having its rules changed down the line, but right now it appears to be the best of the pack for a company that has owners and employees who do the same work. Both types of workers are given W2s so the wages are expensed... owners receive statements of profit and expenses for use in taxes... directly in their 1040s.... just like a sole proprietor.

What I know is from my own investigations a few months back. I started out as a sole proprietor in a new business similar to yours years ago. My employees are pretty good, but I'm still going to move to an S-Corp because of the potential liability that I discovered could come from hackers that we caught in our server after a redirection through London, England. We think it was a competitor, but it still gave us a scare since we keep a remote maintenance database on our clients on the system.

I also have a construction business which is also a sole proprietorship. And I own a few buildings and have decided to make them each a serial LLC for real estate, not related to my other LLCs and corporations. I may have to reinvestigate the idea of having my S corp owning a portion of the serial LLCs that would be used when we break ground for our second and third locations in the IT business. I would do this to increase the expenses to my S-Corp from losses on the real estate during the early years.... but I will have to check out the tax code on losses versus later when each building goes into the black.

As you can see, you have to understand where you will be for the next five years to understand how you want to set up the entities to best serve your interests... or pay another startup fee to the state.

I hope this helps.

Thanks for useful information.

Please check out this article: Partnerships: Taxes Lawyers