Which entity type gives you the BEST protection for your business and personal assets? Which one helps you pay the lowest legal taxes now and later?
Here are the most common options:
1. Sole Proprietorship
2. C Corporation
3. S Corporation
4. Limited Partnership
5. LLC Taxed as a disregarded entity
6. LLC Taxed as an S corporation
7. LLC Taxed as a C Corporation
8. LLC Taxed as a Partnership
With a minimum of 8 options, there’s at least an 87.5% chance the one you choose is wrong for your business.
That can lead to costly and time-consuming problems that can threaten the survival of your business. Why guess when it comes to protecting everything you’ve worked for?
The conflicting answers you get from paid professionals like attorneys, accountants, or tax planners can often be as misleading as guesswork. Good legal advice might have adverse tax implications.
Choosing your tax position alone might leave your intellectual property at risk. You may be as frustrated as I was trying to get a clear answer that considers your whole business and addresses the big picture.
Unfortunately, most entrepreneurs don’t find out that they’ve made the wrong choice until AFTER they lose assets in a business or personal lawsuit or get decimated by the IRS in an audit.
The exposure is just as risky whether you’re just starting or worth $25 million or more. I’ve consulted with thousands over the years and seen virtually every mistake in the book.
Yes, some do get lucky and get away with the wrong structure, but even if they escape an expensive lawsuit, most have no clue how much they’ve wasted over the years in overpaid taxes.
If your business’s future matters to you, it’s time to STOP guessing and educate yourself with my authoritative and field-tested training. It’s called “Discovering which Entity and State are Best to Protect You and Your Business,” and I’m making it available to you absolutely free… not because this course doesn’t offer measurable value…
(Frankly, my consulting clients gladly pay hundreds of dollars for this kind of information… heck… many professionals prizes this incorporation road map simply because it boosts their confidence and credibility in front of their own clients.)
I love helping people sleep better at night, knowing that their assets are safe and their families are protected. Many times all it takes is one or two little shifts to make all the difference between keeping your wealth or losing all of it.
Which entity is best for your new business, an LLC, or Corporation? When you form a new LLC or corporation, the process is easy, with so many online websites.
Filing the articles with a registered agent is the easiest part of the process. The challenging part is determining how your corporation or LLC should be taxed at a federal and state level and make sure you have a complete formation, one with real liability protection, not just filing the articles, which has ZERO protection.
Ask these Questions to Help You Determine is an LLC or Corporation Best?
Here are some of the key questions we recommend you evaluate before you form an LLC (which may be taxed in four different ways) or a corporation that may be taxed as a C corporation or an S corporation.
What is your business, and how does this affect your choice?
A personal service corporation, in the past, was a flat 35%; but since the 2018 tax cuts, that has now been reduced to 21%
20% deduction for pass-through income, with some restrictions
Are you investing in real estate, or do you flip real estate?
Are you an e-commerce seller with potential sales and state income tax requirements?
Do you own real estate? If so, are you a dealer or investor? How many properties do you own? How much total equity and what percentage of your total net worth is all the properties?
Do you have partners?
Is it a domestic partner in a community property state (there are 9)? This comes into play with a single or multi-member LLC.
Is it a foreign partner in another country? If so, is there a tax treaty with your partner’s country?
Do you plan to have a buy-sell agreement?
Is one partner an investor? This has a big impact on how your LLC is managed.
Do your partners have an SSN or ITIN (this is important for banking, U.S. merchant account, and sales tax registration (a few states).
Additional important questions include:
What is your personal income, separate from the income you may earn from the operating business? This is important for U.S. residents attempting to save self-employment taxes, which are 15.3%, with a limit of $137,700 in 2020.
Will your business develop net worth or value over time, or is it the only value-based upon your individual efforts (a consultant or freelancer)? It is challenging to protect the shareholders of an S corporation.
Do you need to develop business credit to help grow your business? After formation, business credit bureaus will start a file, and most businesses look financially naked, with no companies reporting to build a solid business credit score.
Will you keep profits as retained earnings for future growth and expansion? This is especially important with partners.
Do you have an exit strategy?
Do you have a tax firm onboard?
Are you concerned about income on schedule C and having a higher risk of a personal audit? Perhaps a single-member LLC disregarded owned by you with earned income is not the best option.
Are you planning to move to another state or country in the next 1-2 years? Redomicile or foreign qualify and withdrawal?
Do you already have other corporations? Controlled group rules are complex.
Are you a U.S. citizen or resident alien?
Which state or country do you live in currently?
Which entity is best for year one vs. year two and three in your business? If you need to make a change in the future, what are the cost and ramifications?
As you can tell, there is a lot involved in determining is an LLC or corporation best.
Over the past 23 years, our experience is that most people guess or select an LLC but have no idea how it should be taxed or if that was the best option.
This typically leads to expensive taxation and legal issues down the road, especially if the business takes off.
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