Selecting A Form Of Entity For Doing Business

1220 WordsDec 27, 20165 Pages
Selecting a form of entity for doing business. Tax payers, who are business owners, including the self-employed, have choices regarding how to set up their entity for tax purposes. Generally, the following options are available for tax payers: Sole Proprietorship Single Member Limited Liability Company “S” Corporation “C” Corporation Sole Proprietorships do not file any documents, including annual reports, with the Secretary of State. Accordingly, they do not have legal or creditor protection. Sole Proprietorships prepare Schedule C as part of their Individual Income Tax returns, with exception to farmers who must file Schedule F. The Schedule C is the most simplistic form for tax filing purposes, when it comes to business. Sole Proprietors may need to file Schedule SE. Generally, self-employed business owners can set up fringe benefits (i.e. self-employed health insurance deduction and retirement plan) for their business. Self-employed health insurance and retirement deductions are reported on page 1 of the individual income tax form as an adjustment to gross income. Discrimination tests have to be met for the self-employed health insurance if the sole proprietorship has employees. Under the family member 's rule, as stated in Circular E of the IRS: “Child employed by parents. Payments for the services of a child under age 18 who works for his or her parent in a trade or business aren 't subject to social security and Medicare taxes if the trade or business is a
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