I first became interested in accounting after I spent a day job
shadowing my uncle. He was a payroll accountant at a municipality.
Honestly, I didn’t really understand the day-to-day of what he did, but I
could clearly see he enjoyed doing it. He didn’t hate it, while every other
adult in my life hated their jobs. He was happy, joking with co-workers, and
getting tons of overtime. This stuck with me. Years later, on the eve of my
30th birthday, I needed to make a career change. I had been working in the
hospitality industry for years and had lost all interest in cooking
professionally. I have now been an accountant longer than I was a cook and
like my uncle before me I love being an accountant.
By earning my master’s degree, I hope to develop the skills needed to
move up into a management position with my current employer. I work at
the largest affordable housing organization in Southern Maine. The finance
team supports the other departments that build and manage safe, clean,
affordable housing for the unhoused, low-income, new-Mainers and seniors.
When I am not at work, my wife and I spend time with our cats often
watching horror movies.
When deciding what form your new business should take, you must consider
the advantages and disadvantages of each form. A sole proprietorship is an
unincorporated business owned by one person (Anderson, et al., 2023). A
sole proprietorship is not a separate entity from the owner. Income and
expenses are presented on the owner's individual tax return. There are no tax
consequences for contributing cash to or withdrawing profits from the
business. Sole proprietorships are responsible for the full Social Security
taxes, unlike corporate employees (Anderson, et al., 2023).
A partnership is an unincorporated business run by two or more
entities for profit (Anderson, et al., 2023). The partnership does not pay
taxes, the income passes to the returns of the partners. Partnership income is
not double taxed. With few exceptions income contributes to the partnership
or profits withdrawn are generally not taxed (Anderson, et al., 2023). The
partners must pay taxes on profits even if there are no distributions. Partners
must pay the full self-employment taxes (Fleischman & Bryant, 2000).
A C-Corporation is a separate and distinct entity from its owners
(Anderson, et al., 2023). C corps are taxed at the corporate level and when
earnings are distributed to shareholders (Fleischman & Bryant, 2000).
Shareholder employees only contribute half of the Social Security taxes. A
C-Corp can also use a fiscal year-end instead of a calendar year-end
(Fleischman & Bryant, 2000). Unfortunately, net operating losses convene
no tax benefit to the shareholders in the year of the loss. The same is true for
capital losses (Anderson, et al., 2023). An S-corporation is a passthrough
entity with characteristics of both a partnership and the protections of a
corporation.
Sole proprietorship example: Betsy Cashew had recently been let go
from a large tech firm due to a contraction in that industry. Within days of
this news, Betsy received a gift from a relative that had passed, $30,000.
With these funds Ms. Cashew decides to purchase a used van, a shop vac, a
bundle of microfiber clothes and a king’s ransom in cleaning against and
polishes; Betsy was opening her own mobile car detailing service. She never
wanted to have a boss that could fire her again, she wanted control. Betsy is
the sole owner and employee. There is no plan to expand the business or hire
additional help. Betsy Cashew has decided to establish her business in the
form of a sole proprietorship.
Works Cited
Anderson, Kenneth, et al., editors. Pearson’s Federal Taxation 2023
Corporations, Partnerships, Estates & Trusts. Pearson Education, Inc,
2023.
Fleischman, Gary M, and Jeffery J Bryant. “C Corporation, LLC, or Sole
Proprietorship? What Form Is Best for Your Business?” Management
Accounting Quarterly, vol. 1, no. 3, 2000, pp. 1–8.
