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Cons Form 1040 : Individual Income Tax Return Form 4562 : Depreciation Owner can choose a tax arrangement as a sole proprietorship, a partnership, an S corporation or a C corporation. Keep or reinvest income as you please Limited Liability Company (LLC) Pros www.applicant.com Form 1040 : Individual Income Tax Return www.sba.gov Pros Sole Proprietorship Form 8109-B : Deposit Coupon Types Guide To Choosing a Business Structure Form 1040 : Individual Income Tax Return General Partnership Form 4562 : Depreciation Cons Shared decisions can lead to disagreement and cause problems Cannot have more than 35 shareholders (Husband & wife are considered one shareholder) Members are not responsible for any legal judgement against the company Employment Tax Forms Partners divide shares of profit and loss according to the agreement www.jbartram.com Business Structure Cons Form 4562 : Depreciation Some states charge LLCs a franchise tax Non resident aliens, corporations and most estates and trusts cannot be shareholders Form 1040: Individual Income Tax Return 1120S K-1: Shareholder's Share of Income, Credit, Deductions Funds can be raised through the sale of stock Limited life. May end upon the withdrawal or death of a partner Schedule E: Supplemental Income and Loss Corporations Does not have to have annual shareholder meetings or a board of directors like a Corporation Responsible for all debts related to the business Complete control of business Joint Venture Most partners have limited liability (to the extent of their investment) Cons Personal assets will not be at risk because of the activities or liabilities of the S corporation Schedule E : Supplmental Income and Loss www.forms.gov Can elect as S Corporation status if certain requirements are met Form 1040-ES : Estimated Tax For Individuals Some employee benefits not directly deductible from business income Form 4562 : Depreciation and Amortization If there are more than 2 of the 4 corporate characteristics corporation forms must be used Form 1065 K-1 : Partner's Share of Income, Credit, Deductions Subchapter S Corporation Form 1120S: Income Tax Return for S Corporation Pros Cost of benefits provided to employees can be deducted Employment Tax Forms The members of the LLC cannot be paid wages Schedule C : P&L From Business (or Schedule C-EZ) Form 1040-ES: Estimated Tax for Individuals Shareholders have limited liability for the debt or judgement against the corporation Can be difficult to raise financial capital Has no corporate Alternative Minimum Tax (AMT) liability Federal Tax Forms Acts like a General partnership but for a limited period of time Limited Partnership Dividends paid to shareholders are not deductible from business income Much less paperwork or record keeping compared to traditional corporation Generally will not have to pay corporate level income tax Pros Form 1065 K-1 : Partner's Share of Income, Credit, Deductions Cons Form 1120-W : Estimated Tax for Corporation Investors don't feel comfortable investing in a company without shareholders or a non-incorporated business. Form 1120-W : Estimated Tax for Corporation Schedule SE: Self-Employment Tax www.affiliatetips.com Form 4562 Depreciation Partnership Increased possibility in raising funds Easiest and cheapest form of business structure Profits must be split among partners Manager's share of the profits is subject to self-employment tax Shareholders can be held accountable only for their investment in the stock of the company Requires more time and money to form a corporation Employment Tax Forms Sale of assets A limited partner has limited input regarding management decisions Other forms as needed Schedule SE : Self Employment Tax Form 1120 or 1120-A : Corporation Income Tax Return Hard to acquire employees of higher quality at times Partners are jointly liable for the actions of other partners Federal Tax Forms Generally Taxed as Partnership Schedule E : Supplemental Income and Loss Capital gains If one of the members of the LLC passes away, the company can continue Employment Tax Forms Pros Other forms as needed : Capital gains, sale of assets, alternative minimum tax, etc. Form 1120 or 1120-A : Corporation Income Tax Return Form 1040-ES : Estimated Tax For Individuals Federal Tax Forms Form 1040-ES : Estimated Tax For Individuals Form 1065 : Partnership Return Of Income Mutual support and motivation Other forms as needed Form 8829 : Expenses For Business Use Of Your Home Sale of assets Schedule SE : Self Employment Tax Form 4562 : Depreciation Alternative minimum tax, etc. Employment Tax Forms Capital gains Does not have limited partners Federal Tax Forms Is generally used for a single project and short term project If elected as S Corporation, can be taxed similar to a partnership May result in higher overall taxes Shared responsibilities and work Monitored by Federal, State and some local agencies Easy to establish. Caution should be taken when creating partnership agreements Schedule SE : Self Employment Tax Employment Tax Forms Easy to dissolve This form of partnership is more complex in nature Allows flexible distribution of profit and losses Federal Tax Forms FICA tax is not owed on the regular business earnings of the corporation, only on salaries paid to employee Form 8109-B : Deposit Coupon Form 1065 : Partnership Return Of Income Source Often limited to using funds from personal savings and loans Alternative minimum tax, etc. Partners divide responsibility for management and liability By ~ Ritu B. Pant Must operate on a calendar year