Transaction Planning

Partnership, S-Corporation, C-Corporation – Which do you need? Saying “Just form an LLC” doesn’t help – an LLC can be taxed four different ways.
The real question is: What are you trying to do?
If you are already in business (more) how do you best use the entity you already have? Are you leaving money on the table for the tax collector?

Running a business is as a sole proprietor is simple – no separate tax return, no need for double-entry bookkeeping. But if you have a teenager who will be going to college, or if your business has high-dollar risks, let’s talk.

A partnership is the most flexible form, but you need more than one owner. If you plan to finance your business with significant amounts of debt, a partnership lets you maximize your basis, and hence your deductions during your start-up years. And you can share profits and losses with your partners differently under different circumstances.

But if you change owners in the middle of the year, call me right away!

An “S” corporation doesn’t pay its own taxes – the income is taxed on each owner’s personal return. If your net income is over $60K, you may be able to trim your employment taxes. But profit payouts to the owners must be proportional to their ownership, and debt financing must be structured carefully.

Using a “C” corporation is almost out of style. But if the business can be managed so the income is close to zero, there are some intriguing advantages. And if your child is a junior in high school and college bound, you can significantly increase the chance of financial aid.