Thinking about starting your own business for the first time? One of the first things you’ll want to starting thinking about and planning for is how are you going to structure your new business?
In today’s video blog, Donna Blackwell, owner of Personalized Bookkeeping & Tax Services in Mt Juliet, TN discusses your options and forms that you’ll need to file.
Today we’re going to talk about the structures of starting a new business. Hi, I’m Donna Blackwell of Personalized Bookkeeping Tax Service and Tax Debt Relief.
There’s important information you need to know before you start a business so you can plan wisely. First off is, no matter what structure do you need to get a Federal ID number. Do not use your social security number for the business. Use a Federal ID number.
The first one that’s most common is a sole proprietorship. The sole proprietorship is filed on a Schedule C, and it rolls up to your personal tax return on the 1040. You will take draws, you will pay your own Social Security Medicaid at the end of your filing of your tax returns. Of course you need to pay estimated payments throughout the year.
The next most common business, most common one is a single membership LLC. The difference between a single membership LLC and a sole proprietorship is you pay an annual report to your state for $300. And you pay a franchise and excise to the state. Other than that, it is taxed the same way as a sole proprietorship on the Schedule C,
The next one is a partnership. You and a friend or husband wife want to start a new business. You want to do a partnership, you will file a Form 1065 by March 15. And then any profits will be reported on a K-1 which you actually put on your personal return and you pay the taxes on it.
And then a lot of people do a partnership LLC, it’s because they want to protect their self. They have a business that they want to set aside from their personal assets. It’s filed 1065 the same way (as K-1). The only difference on this is still you pay the state $300 for having an LLC. You pay your franchise and excise. They’re due on March 15 also.
A lot of people want to do on Corporation. They’d like to be Corporation, they will file a 1120. That is due on April 15. You must do a reasonable salary for the officers. The corporation stands alone and pays its own taxes and is not reported on your personal income.
Another most common Corporation is an S-Corp. You have to do an election for it. You can do an election any time with a 2553 form. The corporation will not pay the taxes. It will be on K-1 onto your personal tax return, you must do a reasonable salary. That tax return is due just like the partnerships on March 15. And of course, you have to do an annual reporting just like the corporation every year by April 1. And you have to file a franchise and excise tax return.
Most of these businesses are required to have a business license through your county. And some businesses depending on what you do may require in different counties. Remember they’re due on April 15. Maybe a different date including you know a holiday or weekend.
So this is a different things people need to think about when starting a business. You’ve got a sole proprietorship, you got a single membership LLC, partnership, a partnership LLC, a corporation or an S-Corp. Think about what’s best for you. Go see someone tell talk about the tax advantages on how it would help you in your daily life, which tax return to file.
Remember, if you have a small business, keep your business and personal separate. Always have a bank account but the business transactions only. Thank you and have a good day and hope to see y’all soon.