Thursday, April 24, 2014

Started a business, now what?

Congratulations you are now the person in charge of your very own LLC, Partnership or Corporation. Whether you formed a limited liability company, started a partnership or created a Corporation, you now have more responsibilities than ever. So you may find yourself asking, now what?

For some of you the answer is nothing, for some of you the answer is a lot of things, but to keep things simple we will keep the conversation to the most basic level. Assuming that you have no employees and have just opened your LLC, Partnership or Corporation and need to know about your year end filing requirements.

1. Limited Liability Company or LLC:

An LLC is not a federal recognized organization, and for this reason, when you open an LLC (also known as organizing) you may not have any additional filing requirements beyond filing your personal return and including a Schedule C with that filing for this entity. However, if you have an LLC with more than one owner, then the default taxation treatment is a partnership. In this case, you would be required to file a partnership return annually and your year end is usually December 31st, unless you make an election for an alternative year end (see below for more information). You can also make a separate election to be taxed differently than your default tax status.

2. Partnerships

Partnerships are one of the oldest forms of business organization and may not even require a formal legal document (from a tax perspective). Partnerships are also formed at the state level, but these organizations are recognized under federal statute. For this reason, the default annual filing for a partnership is a partnership return annually with a year end of December 31st. You can file for an alternative year end, and you can also file to be taxed differently than as a partnership (this does not change your legal status only your return filing requirements). While you have to file an additional return annually, you do not pay taxes with this return, but rather the earnings are passed through to your personal return. When you file your personal return you either pay tax, or apply expenses against your income (and maybe) receive a refund.

3. Corporations

Corporations are also a very old form of business organization and although there are fewer corporations formed now (as compared to LLCs and Partnerships) this form of business structure is still very popular. There are three most common forms of Corporations, C-Corps ( C- Corporations ), S- Corps ( S Corporations ) and Not for profit entities ( Non-profits). These three types of entities have very different taxation, and usually are formed for much different reasons. I am going to focus on C- Corporations in this article. In the C Corporation status you have created a separate legal entity with an indefinite life. This separate entity has a different tax structure than you personally and also has a separate return annually. It is interesting that this legal status is nearly the only legal status that affords you an automatic year end in any month you choose. It is also the only structure that allows a different tax structure than your personal tax structure.

There are many other accounting and tax rules that may apply to you, depending upon how you organize your business, but we will skip past those for this article.

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