No matter whether you're a multi-billion-dollar corporation or a mom and pop shop operating out of your garage, all businesses have to start somewhere. Many businesses set themselves up for failure right out of the gates by not doing proper tax planning.
Here at Howard L Markowitz PA CPA, we take the time to sit down with all of our clients who are thinking about starting a business with our No-Commitment and 100% Free Consultation to get you started on the right foot.
For tax purposes, there are five primary types of businesses in the United States:
Sole Proprietorship
This is the simplest type of business to setup because it requires absolutely nothing! It's a one-person, unincorporated business, and there is no differentiation between the owner and the business. All of your earnings, receivables, payables and debts are your responsibility. It's easy to start and maintain a sole proprietorship, but the downside comes when your profits are taxed on a Schedule C at a federal self-employment tax rate of 15.3% (known as self-employment tax) before you pay a cent of federal income taxes.
Partnership
Like a sole proprietorship, a partnership can be incredibly easy to setup and maintain, though depending upon the type of partnership, could also be incredibly difficult and complex. Anytime you have multiple owners of a business, you have a partnership, whether it be a limited partnership or a limited liability partnership. The profits from a partnership are generally also subjected to 15.3% federal self-employment tax on top of income taxes.
C-Corporation
A C-Corporation completely separates the business from its owner(s). Stock is issued to the shareholder(s) of the company, and said stock can be bought or sold at any given time. Profits are taxed at the federal corporate level at a maximum tax rate of 21%, and the individual only pays personal income tax on the money physically paid from the company.
S-Corporation
An S-Corporation also separates the business from its owner(s). Though S-Corporation owners also hold stock in their companies, taxation is completely different. The owners of the S-Corporations don't pay personal income taxes on the money drawn from the company, but those monies drawn from the business aren't deductible. The bottom line of an S-Corporation is taxed federally at personal income tax rates and is paid by the individual owner(s). The majority of businesses that have taxable income of at least $40,000 on an annual basis located in the State of Florida should at least consider forming an S-Corporation. The IRS estimates that there are over twice the number of S-Corporations as C-Corporations in existence.
LLC
Limited Liability Companies, or LLCs are setup mostly for legal protection but can be incredibly useful for a plethora of reasons. The LLC is the most flexible device for businesses in American taxation. An LLC can choose to be taxed as a sole proprietorship (if there is only one owner), a partnership (if there are multiple owners), a C-Corporation or an S-Corporation. Regardless of how the LLC is taxed, the entity provides legal protection for the business owner(s) and effectively separates the individual from his or her business.
Pricing
Howard and Adam firmly believe that starting a business shouldn't be a costly venture from an accounting standpoint. Following our No-Commitment, 100% Free Consultation, should you choose to form an S-Corporation, C-Corporation or LLC, we will be able to get the process started for you immediately. Depending upon the state in which you are forming your business, the process could take anywhere from a few days to a few weeks.
Each state charges a different fee for business formation, and each has a different annual fee for maintaining your corporation or LLC.
Business formation can also cost several hundreds of dollars at other accounting and legal firms on top of the state fees. At Howard L Markowitz PA, Certified Public Accountant, we will only charge a $200 fee (separate from the state fees) for getting your business started. This includes your LLC formation, acquiring a federal ID number for your business and, if necessary, filing any state or federal forms required to become an S-Corporation or C-Corporation.