In the start-up world, one of the most misunderstood aspects is the choice of entity for the new business venture. Everyone hears the terms bandied about…LLC, corporation, partnership, sole proprietorship…but hardly anyone outside of a legal professional or CPA truly understands them, and what they ultimately mean to a small business.
Most new small business owners come in to my office and proudly announce…
“I HAVE AN LLC!”
OK, so that does that really mean? You have set up an entity with the Secretary of State’s office which allows you liability protection. That’s great, but it really means nothing in the land of taxes. You’re still a sole proprietorship (if you are only one owner, and for simplicity, let’s assume you are).
But fear not…all that talk about self-employment tax and the need to incorporate may be premature. Here are three cases when being an LLC taxed as a sole proprietorship may be just fine for you:
Here are the links to the respective IRS webpages which explain each plan:
It’s very easy to think that one type of business entity fits everyone, and I have to say that most of our clients are S-Corporations these days. But they didn’t always start out that way. Beginning at the beginning is sometimes the best way to do it, and the sole proprietorship paired with the LLC election is a great place to start.
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