Entity Selection

Sole Proprietor

  • No liability protection except what can be insured (some states allow Single Member LLCs - SMLLC)

  • Subject to Self-Employment tax at 15.3% on Net Earnings from Self-Employment

  • File Form 1040 Schedule C

  • May be subject to State Franchise Tax

Corporation

 

 

  • Two types:  C Corporation & S Corporation

  • C Corporations provide potential for more robust benefits for owners; subject to "double taxation"; files Form 1120

  • S Corporations are "flow-through" entities meaning its income flows through to its shareholders and is taxed on their respective Form 1040; similar benefits to C Corporations; with planning can minimize FICA tax (Social Security and Medicare) as well as State unemployment; files Form 1120S

Partnership

 

  • Little or no liability protection for general partners

  • Net income flows through to partners

  • Limited partners enjoy limited liability

  • Files Form 1065

Limited Liability Company

 

  • NOT a Limited Liability CORPRATION as many believe

  • May be taxed as sole proprietorship, corporation ("C" or "S") or partnership under "check the box" regulations

  • Provides owners with limited liability

  • Probably subject to State Franchise Tax

  • Files Form 1065 by default (two or more members), Form 1040 Schedule C (single member) or can elect to file Form 1120 or 1120S