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Therec arec mulplec advantagesc andc disadvantagesc toc choosingc ac Solec Proprietorship,c Partnershipc orc
Corporaon.c c Solec Proprietorshipsc arec ac legalc extensionc ofc thec owner,c withc incomec andc expensesc
reportedc onc Schedulec Cc ofc Formc 1040.c Thec individualc taxc ratec mayc bec lowerc thanc ac corporaon.c Anc
ownerc ofc ac Solec Proprietorshipc canc contributec orc withdrawc moneyc withoutc taxc consequences,c andc
thec moneyc belongsc toc thec ownerc personally.c Disadvantagesc includec incomec beingc subjectc toc Self-
Employmentc taxesc atc ac ratec ofc 15.3%.c Thec scalc yearc ofc thec Solec Proprietorshipc mustc bec thec samec asc
thec owner/individual,c whichc meansc incomec cannotc bec deferred.c c Salariesc paidc toc thec ownerc arec notc
deducble.
c Partnershipsc arec anc unincorporatedc businessc withc twoc orc morec owners.c c Incomec andc expensesc arec
reportedc onc Formc 1065,c butc thec entyc doesc notc payc taxes.c Incomec andc allc taxc relatedc itemsc owc toc
thec partnersc onc Formc K-1,c whichc mustc bec includedc withc theirc individualc taxc return.c Thec Partnershipc
canc bec eitherc Generalc orc Limited.c c Generalc Partnershipsc liabilityc isc unlimitedc forc eachc partnerc andc canc
bec greaterc thanc theirc investment.c Limitedc Liabilityc partnersc arec onlyc liablec toc thec extentc ofc theirc
investment.c Protsc arec taxedc atc thec partnerc level,c regardlessc ofc ifc therec arec distribuonsc orc notc
duringc thec year.c Self-Employmentc taxc ofc 15.3%c isc thec bec paidc onc income.c
c Corporaonsc canc bec formedc asc eitherc anc Sc Corporaonc orc Cc Corporaon.c Bothc havec limitedc liability.c
Cc Corporaonsc reportc incomec andc expensesc onc Formc 1120.c Shareholdersc ofc thec Cc Corpc arec taxedc onc
dividendsc reportedc onc Formc K-1.c Thec individualc taxc ratec mayc bec higherc thanc thec taxc ratec ofc ac Cc Corp.c c
Shareholdersc arec entledc toc fringec benets;c halfc ofc Socialc Securityc andc Medicarec withholdingc arec
paidc byc thec Corporaonc andc salariesc canc bec deducted.c Ac disadvantagec ofc Cc Corporaonsc isc doublec
taxaon.c Protsc arec taxedc atc ac corporatec level,c andc distribuonsc arec taxedc atc thec shareholderc level.c Sc
Corporaonsc havec limitsc toc thec numberc ofc shareholdersc butc arec notc subjectc toc doublec taxaon.c Allc
earningsc owc toc thec shareholdersc onc formc K-1c basedc onc theirc ownershipc percentagesc andc arec
reportedc onc theirc individualc taxc return.
Regardlessc ofc thec entyc structure,c therec arec advantagesc andc disadvantagesc toc selecngc ac solec
proprietorship,c ac partnership,c orc ac corporaonc forc ac newc business.c c Severalc consideraonsc (includingc
taxc reporng)c mustc bec considered.c c Ac solec proprietorshipc isc thec easiestc andc mostc cost-eecvec toc setc
upc (Ancheta,c 2023).c c Thisc typec ofc entyc accountsc forc paymentsc toc ownersc whoc workc atc thec businessc
byc takingc drawsc orc drawingc moneyc outc ofc thec company.c c Incomec andc expensesc arec reportedc onc thec
personalc taxc returnc viac ac schedulec C.c
Therec arec severalc dierentc typesc ofc partnerships,c butc speakingc inc generalc termsc ac partnershipc isc easyc
toc setc upc andc isc usuallyc inexpensivec toc getc started.c c Ac partnershipc hasc anc operangc agreementc
betweenc thec partners.c c Itc canc electc toc bec taxedc asc ac partnershipc orc asc ac corporaon.c c Ac lotc ofc thec
partnershipsc thatc Ic workc withc havec submiedc thec IRSc formc 2553c toc electc toc bec taxedc asc anc s-
corporaon.c c c Partnersc inc ac regularc partnershipc typicallyc receivec guaranteedc paymentsc forc servicesc orc
usec ofc capital.c c However,c ifc theyc havec donec thec s-eleconc theyc getc paidc payrollc ifc theyc arec workingc forc
thec business.c c c Ac partnershipc wouldc lec ac 1065c taxc returnc andc incomec andc expensesc wouldc passc
throughc toc thec partnersc onc theirc personalc returnc viac ac K-1.c c Ifc thec 2553c wasc led,c theyc wouldc
completec anc 1120-Sc taxc return.c c Incomec andc expensesc wouldc passc throughc toc thec personalc taxc returnc
viac ac K-1.c
Again,c therec arec severalc typesc ofc corporaons.c c Ac corporaonc isc usuallyc harderc toc setc up.c c Theyc canc
bec subjectc toc doublec taxaon.c c “Cc Corporaonsc payc corporatec taxesc onc earningsc beforec distribungc
theirc protsc toc thec shareholdersc inc thec formc ofc dividends.c Individualc shareholdersc arec thenc subjectc toc
personalc incomec taxesc onc thec dividendsc theyc receive”c (Ancheta,c 2023).c c Thec incomec taxc wouldc bec
calculatedc andc duec onc thec 1120c taxc return.c c Noc incomec andc expensesc arec passedc throughc toc thec
owner.c c c Ifc anc s-corporaonc wasc setc upc byc lingc thec IRSc formc 2553,c ownersc workingc atc thec businessc
wouldc bec paidc payroll.c c Incomec andc expensesc arec passedc throughc toc thec ownersc viac ac K-1c andc
allocatedc byc ownershipc interests.c c Anc S-Corporaonc isc requiredc toc havec fewerc thanc 100c shareholders.c
c Distribuonsc arec alsoc somemesc givenc ifc warranted.c c
Whenc workingc inc thec accounngc eld,c itc isc somemesc necessaryc toc assistc ac newc businessc ownerc withc
idenfyingc thec mostc appropriatec entyc structurec forc taxc purposes.c c “Ac solec proprietorshipc isc anc
unincorporatedc businessc withc onec ownerc (Rienberg,c 2023).c c Anc examplec ofc ac goodc tc forc ac solec
proprietorshipc wouldc bec ac singlec ownerc starngc outc ac veryc smallc photographyc businessc inc theirc sparec
me.c c Incomec andc expensesc forc thec businessc wouldc bec reportedc onc ac Schedulec Cc withc thec personalc
taxc return.c c Asc ac solec proprietor,c youc arec personallyc responsiblec forc allc yourc businessc debtsc andc
obligaons,c includingc loans,c leases,c creditc accountsc andc lawsuits.c (Rienberg,c 2023).c c Thec nicec thingc
aboutc ac solec proprietorshipc isc thatc itc canc alwaysc bec convertedc toc anotherc typec ofc entyc inc thec futurec
shouldc liabilityc protecon,c forc example,c bec ac concern.c
References:
Ancheta,c A.c (2023,c Januaryc 23).c Whatc isc ac Cc corp?c Investopedia.c Retrievedc Februaryc 2,c 2023,c fromc
hps://www.investopedia.com/terms/c/c-corporaon.asp
Rienberg,c J.c (2023,c Januaryc 24).c Whatc isc ac solec proprietorship?c Forbes.c Retrievedc Februaryc 2,c 2023,c
fromc hps://www.forbes.com/advisor/business/what-is-a-sole-
proprietorship/#:~:text=A%20sole%20proprietorship%20is%20an%20unincorporated%20business%2
0with,sole%20proprietorship%E2%80%93you%E2%80%99ll%20automacally%20be%20a%20general
%20partnership%20instead.
Charlenec decidesc toc helpc ac fewc friendsc byc doingc theirc bookkeepingc onc ac quarterlyc basis.c Shec doesc
notc planc onc thisc becomingc ac largec businessc andc doesc notc havec manyc expenses.c Shec wouldc benetc
fromc runningc thisc businessc asc ac Solec Proprietorship,c asc itc willc notc bec herc solec sourcec ofc income,c andc
shec doesc notc expectc ac largec revenuec stream.c Thisc canc easilyc bec recordedc onc Formc Schedulec Cc toc keepc
thingsc simple.
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