Business Entity Pros and Cons

Sole Proprietorship

Pros

Cons

Good Fit

Single-Member LLC

Pros

Cons

Good Fit

Multi-member LLC

Pros

Cons

Good Fit

General Partnership

Pros

Cons

Good Fit

Limited Liability Partnership

Pros

Cons

Good Fit

C Corporation

Pros

Cons

Good Fit

S Corporation

Pros

Cons

Good Fit

Business Formalities

A common issue with a closely-held business is failure to adhere to business formalities. Trouble can occur when business and personal funds are intermingled, the busi-ness is not adequately capitalized, or reasonable compen-sation for services is not paid.

For example, separation of funds can be a key in preserv-ing the liability protection of the “corporate veil.” Courts can pierce the corporate veil if they find the corporation is an “alter ego” of the shareholder, which is likely to occur if shareholders pay personal expenses from the corporation checkbook or vice versa.

Transactions such as capital contributions or loans between the business and the owners can also be recharacterized by the IRS, creating unexpected negative tax consequences.

Contact Us

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.

Leave a Comment

Scroll to Top