Business Entity Comparison Chart

Sole proprietor, single-member LLC, and spouses-owned business

Entity

Accounting and Recordkeeping

Fringe Benefits

Excludable fringe benefits are generally not allowed for the owner.

Exceptions:

Health insurance
is deductible if the spouse is an employee of the sole proprietorship, and the owner is covered as a family member of the employee-spouse. The spouse is also eligible for dependent care assistance fringe benefits, de minimis fringe benefits, and working condition fringe benefits.

Liability

Owner is personally liable for all debts and lawsuits against the business

Exceptions:

If organized as an LLC, liability is usually limited to owner’s investment and his or her own malpractice or debt guarantees.

Organization and Ownership

Taxation of Profits and Losses

Exceptions:

Losses cannot be used to offset income from activities subject to passive loss, at-risk loss, and hobby loss rules.

Partnership

Entity

Accounting and Recordkeeping

Fringe Benefits

Partners are eligible for some excludable fringe benefits. Taxable benefits are reported as guaranteed payments or an adjustment to a partner’s distributable share of profits.

Liability

A general partner is personally liable for all debts and lawsuits brought against the partnership

Exceptions:

If the partner is a limited partner, or the business is organized as an LLC, liability is generally limited to the partner’s investment, plus his or her own malpractice or debt guarantees.

Organization and Ownership

Taxation of Profits and Losses

Exceptions:

Losses cannot be used to offset income from activities subject to passive loss, at-risk loss, and hobby loss rules.

S corporation

Entity

Accounting and Recordkeeping

Fringe Benefits

Shareholder/employees are eligible for some excludable fringe benefits. Benefits added to taxable wages on Form W-2 of more than 2% share holders include accident and health plans, up to $50,000 of group health insurance, and meals and lodging furnished for the employer’s convenience.

Liability

A shareholder’s liability is limited to the amount invested, plus his or her own malpractice or debt guarantees.

Organization and Ownership

Taxation of Profits and Losses

C corporation

Entity

Accounting and Recordkeeping

Exceptions:

A personal service corporation (PSC) must use
a calendar year unless it establishes a business purpose for using a fiscal year or makes an IRC section 444 election.

Fringe Benefits

Shareholder/employees eligible for excludable fringe benefits, generally to the same extent as any other employee, with exceptions under the nondiscrimination rules. Benefits can include health insurance and reimbursement, education, life insurance, etc.

Liability

A shareholder’s liability is limited to the amount invested, plus his or her own malpractice or debt guarantees.

Organization and Ownership

Taxation of Profits and Losses

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There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves sum-marizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following:

  • Pension or IRA distributions.
  • Significant change in income or deductions.
  • Job change.
  • Marriage.
  • Attainment of age 59½ or 73.
  • Sale or purchase of a business.
  • Sale or purchase of a residence or other real estate.
  • Retirement.
  • Notice from IRS or other revenue department.
  • Divorce or separation.
  • Self-employment.
  • Charitable contributions of property in excess of $5,000.

*This post contains general information for taxpayers and should not be relied upon as the only source of authority. Taxpayers should seek professional tax advice for more information.

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