Acct 145
Ch. 2 Entity Comparison:
Sole Proprietorship:
Fill out Schedule C when filing 1040 return
Advantages:
Easy to form
Property transfer is easy
Only one entity is taxed
Disadvantages:
Social Security tax is paid on all profit
Unlimited Liability (if you get sued they can take away your personal property)
Limited Resources (no investors)
Limited Liability Partnerships (LLP):
File 1065
Taxed and treated like a partnership with all the partnership advantages and disadvantages.
Corporation C:
File 1120 form
Person can be owner and employee of the company
Advantages:
Limited Liability
Only pay social security on wages you make
Can have fiscal year end
Disadvantages
Double Taxation (dividend taxed corporate and individual level)
Distributions are difficult
Partnership: General & Limited
File 1065 form
General v.s. Limited: General Partnerships are liable for all debt. A Limited Partnership is liable for a certain amount of debt.
Pass through entity (entity does not pay taxes, partners are individually taxed)
Advantages:
Easy to form
Property transfer is easy
More resources are available (investors)
Disadvantages:
Social Security is paid on all profit
Unlimited Liability (if you get sued they can take away your personal property)
Joint and Several Liability (liable for all debts)
Corporation S:
File 1120S
Taxed like a partnership
Advantages
No double taxation
Pass through entity
Cannot force corporation to distribute
Disadvantages
Taxation and distribution are tracked and could be very difficult
Must be calendar year