starting a business - LLC or S corporation or C corporation - which is best? (JFLAWFIRM.com)

 

Which Legal Entity is Right for Your Business?

In order to properly start your new business, among the first items to do is to make a choice in regards to the appropriate legal entity form. Creating a legal entity specifically for your new business serves as a legal separation between you, as a person, separate from the business.
Your business should be able to issue shares to its owners, own its trademarks and other intellectual property, recruit employees, be part of contracts, and shield the business owner away from personal liability from business debts.
 

Sole Proprietorship

This type of business entity is not a separate legal entity by any stretch. There is absolutely no boundary between you as a person and you as the business owner. If someone sues your business they will be able to get your personal assets.
This liability also includes whatever your employees do. There’s certainly no probability of having investors, so this kind of business works if you do in fact elect to operate it yourself.

Limited Liability Company

A Limited Liability Company (LLC), offers its members limited liability. An LLC combines the best of both worlds, the convenience of a partnership with the limited liability protection offered by a corporation.
In order to create an LLC you must file the Articles of Organization with the Florida department of State and create an operating agreement, which defines profit sharing, rights and duties of members, decision-making, and allocations of profits amongst members.

S Corporation

The S Corporation has similar features into the C Corporation but differs primarily as far as the tax structure. The S Corporation provides flow-through taxation in that in taxes income only once at the shareholder level.
The S Corporation has a maximum of 100 shareholders and all shareholders must be US persons. This makes it challenging to seek a funding from investors who may be foreigners or who may pool investor money. The S Corporation can only issue one call of shares making it less attractive to investors.

C Corporation

The C Corporation is a legal entity, which is responsible for its own corporation debts and corporation obligations. The C Corporation does not stop to exist simply because its shareholders are dead. A C Corporation can offer different types of shares. The C Corporation, functions as its own taxable entity, in other words, its earnings are taxed twice: once at the entity-level and once more at the shareholder level on dividends.
Therefore, most investor’s funds rather be part of the C Corporations, given that it may issue preferred shares and protects them from any personal liability. Also, this particular type of business entity, management and ownership are separate, and its government needs to be structured. Shareholders are responsible to elect directors and everything will be laid out in the shareholder agreement.

General Partnership

A general partnership is created by operation of law when two or more partners act jointly. The partnership can take actions as a separate entity.
Forming a partnership is simple. However, you will be responsible for the partnership and whatever each partner does. Therefore, this makes a general partnership a very risky form of legal entity.

Limited Partnership

A Limited Partnership evolved from the general partnership. The entity involves a mixture of general partners, who oversee the business and undertake the liability, as opposed to the limited partners, who contribute capital and only possess limited liability. Investors like Limited Partnerships because they can invest without putting on the liability. Founders like general partnerships because they can fully control the partnership, even if it comes with full liability.

Self Employed? Best Ways to Save for Retirement (Fidelity)

Saving for the self-employed
BY SARAH MAX,
— 03/24/11

Run your own business? Here’s help choosing the right retirement saving strategy for you.
Whether out of choice or necessity, the ranks of the self-employed are growing.

No matter what you call them—independent consultants, contract employees, entrepreneurs or just plain freelancers—self-employed people account for more than a quarter of those working in the U.S., according to a 2010 survey by Kelly Services, a human resources consulting firm, up from 19% three years earlier. While the trend was fueled by the recession, workplace experts say it's here to stay.

Working for yourself can mean more flexibility, greater job satisfaction and the potential for a bigger paycheck. What it doesn't offer is a neatly packaged bundle of benefits. That means the burden for saving for retirement falls solely on you.

There are plenty of options
The good news: There are ample opportunities for self-employed savers to sock away tax-deferred money. In fact, you have the potential to save even more on your own than you would working for someone else, says Brian Hogan, director of retirement product management for Fidelity Investments.


Before you dive headfirst into choosing a retirement account, though, make sure you've addressed such things as lining up health insurance and building your cash reserves. “You don't want to lock money in a retirement plan only to have to pull it out,” says Bill Losey, a certified financial planner in Wilton, N.Y.

Next, give some thought to your business. Do you have employees? Will you have some next year? And what sort of retirement benefits, if any, do you plan to offer? Some plans put the burden of saving for your employees’ retirement on you, the business owner, says Hogan.

The issue is complex, and can add a layer of administrative headaches. So it’s a good idea to talk with your tax adviser. The primer below outlines the key advantages and caveats of the various options for self-employed savers. Don't drag your feet though. Just because you don't punch in doesn't mean the retirement clock has stopped ticking.

SEP IRA
Available to self-employed workers and small businesses, the Simplified Employee Pension plan, or SEP, is essentially an IRA with bigger contribution limits. How big? For the 2010 and 2011 tax years, you can contribute up to 25% of your compensation up to a maximum of $49,000.

That limit is significantly higher than the $16,500 you could sock away in a company 401(k). “For ease of use, this is my favorite plan,” says Losey. “It's easy to open, there are no annual reporting requirements and you can adjust your contributions as you see fit.”

Advantage: You have until your tax-filing deadline to establish the account and make contributions, and you aren't obligated to make regular contributions to your account or your employees' accounts. For 2010, that means you can still set up a plan and make a deductible contribution by April 18; if you file an extension you may have until Oct. 15.

Caveat: If employees are in the picture, they can't make contributions to the plan, but you can contribute money on their behalf.

Solo 401(k)
A relative newcomer, the solo or self-employed 401(k) became available in 2002 and resembles the employer 401(k) plans most people know and love.

“Because of its familiarity, more people are leaning toward these plans,” says Cheryl Costa, a certified financial planner with AFW Advisors in Natick, Mass. You can contribute 100% of your compensation up to $16,500 ($22,000 if you're over 50) plus 25% of your compensation through profit-sharing for a maximum grand total of $49,000 a year.


Moreover, some plans allow participants to opt for Roth contributions, in which case they pay taxes now for the potential to save taxes later. Whether or not you go this route depends on many factors but it's worth a look. “Chances are you already have plenty of deductions as a self-employed person or business owner,” says Jerry Cannizzaro with Retirement Planning Services Inc. in Oakton, Va.

Advantage: The maximum allowed is the same as a SEP. But if your adjusted earned income is $82,500 or less, you'll be able to save more in a solo 401(k) than in a SEP, where contribution limits are tied to income and don't include profit-sharing. “If you have excess cash flow a solo 401(k) may be the way to go,” says Losey.

Caveat: If you have full-time employees you need not apply; plans are only available to self-employed individuals or companies with no employees other than spouses. Unlike the SEP, the plans do have annual reporting requirements.

Simple IRA
Available to self-employed workers and businesses with 100 employees or fewer, the plans are as easy to set up as the name suggests. The differences between a SEP and Simple IRA show up if you have employees. Unlike a SEP, where only employers can make contributions on behalf of their employees, these plans let employees save up to $11,500 ($14,000 if 50 and older) toward their retirement.

They also allow employers to make matching contributions of up to 3% of compensation or contribute up to 2% of each employee's salary, up to $4,900. If you are a self-employed individual or owner of the company you can effectively match your own savings. But if you match your own savings you'll be required to do the same for your employees. And once you start making contributions, says Costa, you may be required by law to continue with that match.

Advantage: If you have employees, a Simple IRA allows them to make their own contributions to the plan.

Caveat: Contribution limits are significantly lower than those for the SEP or the solo 401(k).

Keogh
Introduced in the 1960s as the original self-employed retirement plan, Keoghs went out of vogue with the introduction of the three plans mentioned earlier. These days the term Keogh generally is used to describe two other types of individual retirement plans, profit-sharing plans and defined-benefit plans. Both can be a hassle to set up and to maintain, requiring a plan document and annual report.

With profit-sharing plans, which are based on a percentage of income and capped at $49,000, it's probably not worth it. But if you're looking to play catch-up for retirement and have the cash to invest, a defined-benefit plan may be worth checking out, says Costa. The reason: You can put up to $195,000 a year in a defined-benefit plan — but your actual contribution is based on an annual actuarial calculation that takes into account things like your income, years to retirement and projected returns.

Advantage: Potentially huge — up to $195,000 — in contribution limits.

© 2008-2011 Fidelity Interactive Content Services LLC. All rights reserved.

How to Get Really Rich ( Joan Rivers)

Watch as Joan Rivers probes the lifestyle of the ultra-rich, revealing many cases of excessive consumption but also some fascinating and inspiring Rags-to-Riches stories.

Starting a Business? Incorporate For Free

Form a Free Corporation or Free LLC

MyCorporation.com, the leader in online incorporation, is offering its filing services free of charge when you form a corporation or limited liability company. Now that's economic stimulus!

Work from Home that's Not a Scam (WSJ)

CAREERS MAY 6, 2009 Negotiating the Freelance Economy
Article
By SARAH E. NEEDLEMAN

In April 2008, Rebecca Haden lost her job when the small store she managed went out of business. A year later, she's working as many as 40 hours a week and earning much more than she did before -- even though she still doesn't have a job. Her formula? Freelancing her Web skills.

Ms. Haden, of Fayetteville, Ark., is among a growing number of professionals who are making ends meet by working on a project-by-project contract basis. Even as permanent- and temp-job opportunities are shrinking, the amount of contract work to be found on freelance-jobs sites is expanding. What's more, it's moving beyond computer-programming and graphic-design gigs for small employers to include listings from larger companies and assignments in fields such as accounting, law, engineering and sales.

Between January and March, employers posted 70,500 of these work-for-hire positions on Elance.com and 43,000 on Odesk.com, which represents increases of 35% and 105%, respectively, from the same period in 2008. Sologig.com, which lists remote and on-site freelance jobs, says its average monthly postings have more than doubled to around 13,500 per month in the past year. In March, there were 750 jobs listed on VirtualAssistants.com, versus 400 in March 2008.

Rebecca Haden has landed a steady supply of project-based work, in part by using freelance-job site Odesk.
At the same time, the number of U.S. workers employed by temporary-help-services firms in March fell 27% to 1.8 million from the same month in 2008, according to the Labor Department.

As the recession takes hold, more employers are using freelance workers to avoid the expenses associated with hiring permanent staff, says Fabio Rosati, chief executive officer of Mountain View, Calif.-based Elance. "The power of online work is that it's immediate, cost-effective and flexible," he says.

Indeed, freelance workers are often cheaper and more flexible than temp workers, whose jobs, though short-term, tend to be full-time, subject to temp-agency fees, and bound by agency restrictions, such as limits on the permanent hiring of temps.

Mr-SEO.com, an online marketing firm with eight employees, began using freelance help a year ago to handle tasks in Web-site development, administrative services and copywriting. The five-year-old Seattle-based company hired 17 freelancers through Odesk.com for projects that lasted as little as a few days or as long as eight months and counting. "It gives us the flexibility to expand our work force depending on client demand," says Greg Gaskill, the company's president.

Like many workers who turn to freelance positions, Ms. Haden, a 51-year-old mother of four, didn't plan to take on piecemeal work after her layoff. At first, she approached a local Internet company about a permanent job doing Web optimization -- a technique for boosting a site's search-engine rankings. It was a skill she had learned while overseeing her former employer's online store and blog. The firm wasn't hiring, but it offered her a short freelance assignment. She accepted.

Ms. Haden, who holds a master's degree in linguistics, wrote about the experience for a popular blog on Web optimization. "People started approaching me with work pretty soon after that," she says.

'I Just Do the Fun Stuff'
One gig she landed introduced her to Odesk, which, like some other contract-job sites, can monitor freelancers' work. Since then, Ms. Haden says she's landed a steady supply of Web-optimization assignments through Odesk, as well as through her personal Web site and blog. Most months, she earns more than double her previous income. Ms. Haden says the work has been fulfilling, and she has put her permanent-job search on hold indefinitely. "I get to pick and choose what I do now," she says. "And I just do the fun stuff."

Family Money
Take This Dream and Crunch It

Many other laid-off professionals appear to be taking up freelancing, either as a new career or as a way to weather the downturn. Freelance-job sites say membership among individuals, which is free in many cases, has risen sharply. For example, Guru.com has nearly 878,000 freelance members today, up from around 760,000 a year ago.

Freelance-job sites also say they're seeing more midsize and large employers posting assignments, and the jobs have expanded into more business functions, such as finance, manufacturing and law. For example, roughly 1,700 new jobs were added to the sales and marketing category on Elance in March, a 50% increase from a year ago. That's led to new types of contract workers, too.

Last month, Lynn Welch became one of those new freelancers when she began a 96-hour home-based consulting stint for Axsys Technologies Inc., a large, publicly traded manufacturer of infrared technologies based in Rocky Hill, Conn. She was laid off in March from a senior marketing position at a midsize technology firm and says her Axsys contract is one of four freelance assignments she's landed either through networking or Guru. She's so far earned roughly $10,000 from freelance gigs in online marketing.

Pitfalls of Contract Work
Despite her successes, Ms. Welch, who is 40 and lives in a Washington, D.C., suburb, says she still deals with some of the pitfalls that come with contract work. For example, she says she once spent several hours researching and explaining how she'd handle a potential project, but didn't get the gig. "Some [employers] want to pick your brain and have no intention of paying you," she says. Now Ms. Welch is more cautious about sharing information with employers before a contract is signed. "If they're asking for a lot of details, that's a warning sign," she says.

Sites like Odesk, Guru and Elance guarantee payment after jobs are completed in return for commissions of about 6% to 10% of freelancers' fees. But many other sites hold individuals fully responsible for billing clients and collecting payments.

There are other downsides to freelancing, from the lack of health coverage and paid time off to the need to make your own retirement contributions. Striking out on your own also requires regularly searching for and vetting potential new assignments, while ensuring that you complete on time the ones you've already secured. Furthermore, you may need to invest in equipment such as computer software and a business phone line.

Carving Out a Niche
Should you decide to take up contract work, there are ways to help ensure the process goes smoothly. First, make sure to be very specific about your skills and expertise when you fill out a profile on a freelance job site, says Kate Lister, author of "Undress for Success: The Naked Truth About Making Money at Home." Doing so will help you stand out from the competition. "You want to carve out a niche," she says.

To figure out how much to charge for your work, research the rates that experienced freelancers demand for similar services, suggests Ms. Lister. The information can usually be found in members' profiles on freelance job sites. "Look at their portfolios and ask yourself, could I produce that level of work? Could I do much better than that?" she says. After settling on a figure, Ms. Lister suggests starting out at a slightly lower rate to build a track record.

Another option is to offer to work for just a few hours at first to prove yourself, suggests Gower Idrees, founder of RareBrain Capital LP, a consulting firm specializing in high-growth businesses in The Woodlands, Texas. Since early 2007, Mr. Idrees has hired about 1,500 freelancers from Guru -- including former big-company executives, many as consultants. "I've used them in every way possible," he says.

Mr. Idrees recommends discussing potential projects with hiring managers over the phone whenever possible, rather than using email, in order to build trust and negotiate a fair pay rate. That way, a potential freelancer "can educate [the company] on what the challenges really are," he explains. Sometimes, he says, employers aren't aware just how many hours a project will require.

Write to Sarah E. Needleman at sarah.needleman@wsj.com



Printed in The Wall Street Journal, page D1

Hidden Tax Tips for Entrepreneurs (Business Week)

Small Business Financing February 17, 2009, 4:43PM EST

Hidden Tax Tips for Entrepreneurs
Twenty-five tax deductions you may not have heard of—but should
By John Tozzi

Are you missing tax deductions you're entitled to? Small business owners, self-employed workers, and independent contractors can write off many legitimate business expenses immediately, reducing the amount of income on which they pay taxes. But if you overlook applicable deductions or fail to keep adequate records that will back up your write-offs during an audit, you give up opportunities to cut your tax bill.

The Schedule C tax form used by sole proprietors to report business profit or loss has 21 line items for business expenses—including such catch-all categories as "office expense," "supplies," and "other expenses." The tax forms for partnerships, LLCs, and S-corps are similarly broad. "It doesn't even begin to hint at all the things that a business can legitimately deduct," says Bernard Kamoroff, a certified public accountant and author of 422 Tax Deductions for Businesses & Self Employed Individuals. Don't expect your accountant to find all the deductions you qualify for—your accountant doesn't know your spending as intimately as you do.

Kamoroff says business owners can reduce their tax bills by deducting expenditures that the Internal Revenue Service doesn't explicitly outline, but are nonetheless legitimate business expenses. In general, a purchase must be "ordinary and necessary" in your trade to be deductible. Few of the often-overlooked write-offs on their own will cut your tax bill substantially, but in aggregate, they can be worth the time and effort to track and deduct them. "They're all nickel dime, but boy they can add up," Kamoroff says.

Vehicle Deductions Often Overlooked
There are a few big deductions that can significantly reduce your tax bill if you qualify. New investments of up to $250,000 in equipment, vehicles, or software can be written off immediately, rather than depreciated over future years, under the Section 179 deduction. If you have a home office that you use exclusively as your primary place of business, you can deduct costs for the business use of your home. And if you use your car or truck for business, you can deduct work-related expenses for gas, maintenance, insurance, and other costs, either using the IRS's standard mileage rate or by calculating the actual costs. The home office and vehicle deductions are two of the most overlooked write-offs, according to the National Association for the Self-Employed.

Small business owners who travel for business may also deduct some of their travel costs. Business-related meals and entertainment are only 50% deductible, although you can't write off expenses that are considered "lavish and extravagant." If your trip is exclusively for business, lodging and transportation costs are fully deductible. If the trip mixes business and personal matters, you may still be able to write off some business-related expenses.

Aside from big write-offs like travel or home-office deductions, plenty of other expenditures can save you money on taxes. If more than half your cell phone use is for business, you can deduct the cost of the business-related calls. Write off your Web hosting and domain name charges. And deduct the cost of business-related books, magazines, and newspaper subscriptions.

Meticulous Records a Must
The key to taking these small deductions is keeping track of your expenditures, so that you can show an auditor that your write-offs are truly business-related. "It is very important that they keep meticulous records, because the IRS is going to be pretty aggressive," says Chas Roy-Chowdhury, head of taxation for the Association of Chartered Certified Accountants. But business owners who take legitimate deductions, and have the receipts, invoices, or other records to back them up, can maximize their tax savings.

Tax Deductions You've Never Heard Of
Are you leaving tax savings on the table? Plenty of legitimate business expenses aren't spelled out by the Internal Revenue Service. It's up to you to find them—and keep records that will show they're reasonable if you get audited. Most "ordinary and necessary" business expenses can be deducted, says Bernard Kamoroff, a CPA and author of "422 Tax Deductions for Businesses & Self-Employed Individuals." Here are 25 write-offs Kamoroff identifies that you may qualify for without even knowing. When in doubt, check with your accountant to see if these apply to you.

ATM Fees, Credit-Card Fees, and Interest
You can deduct ATM fees, credit-card fees, and other bank charges incurred on your business accounts.

Category this deduction falls into: Office expenses; interest

Books, Magazines, and Newspapers
Business-related books and subscriptions to magazines, newspapers, and trade publications are deductible.

Category this deduction falls into: Office expenses

Business Cards
Deduct the cost of business cards for yourself and your employees.

Category this deduction falls into: Office expenses

Cell PhonesIf more than half of your cell-phone use is for business, you can deduct that proportion of the cost, up to the full amount if you have a dedicated cell phone for your company. But if you use your cell phone for business less than half the time, you can't deduct it.

Category this deduction falls into: Office expenses

Child Care
If you offer employees child care, you can deduct the cost. You can offer employees up to $5,000 a year in dependent-care benefits that are excluded from their wages, tax-free to them and deductible for you. Employees may qualify for other dependent-care tax credits. For more, check the IRS guidelines.

Category this deduction falls into: Employee benefit programs


Cleaning Service
The cost of a cleaner or janitor to maintain your place of work is deductible.

Category this deduction falls into: Office expense


Coffee and Snacks
Write off what you pay to keep yourself and your staff caffeinated. Other small office snacks are deductible, but meals for yourself are not, and the cost of meals provided to employees can only be deducted if there's a business reason for having them eat at work.

Category this deduction falls into: Office expenses

Company Parties
Deduct the entire cost of a party where all employees are invited. Other business parties or events that are thrown to promote the business are considered entertainment, and are therefore 50% deductible.

Category this deduction falls into: Office expense, entertainment.

Disabled Access
Small businesses can get credits and deductions for the cost of making their place of business accessible to people with disabilities. For more information, see the IRS guide.


Domestic Production
Even nonmanufacturers may qualify for a break called the Domestic Production Activities Deduction. Firms including architects, engineers, software makers, and film producers all may be eligible for this deduction, which is equal to 6% of net income from domestic production activities. It maxes out at 50% of W-2 wages, however, so non-employer firms don't qualify. For more, see the IRS instructions.

Dues
Deduct membership fees in trade organizations, professional groups, and chambers of commerce. Portions of dues that are for political lobbying are not deductible, and dues for political clubs or recreational groups aren't business expenses and can't be deducted.

Category this deduction falls into: Other expenses

Garbage Pickup
If you pay to have your trash hauled, you can deduct the cost. Some manufacturers may have to add this to the cost of inventory.

Category this deduction falls into: Utilities


Greeting CardsGreeting cards to clients and prospects count as tax-deductible expenses.

Category this deduction falls into: Office expenses

Internet Access
You can deduct the cost of your Internet access, but if you use the connection for both business and personal purposes, you can only deduct the amount used for business.

Category this deduction falls into: Office expenses

Lists
If you buy or rent lists of e-mail addresses, mailing addresses, or phone numbers, you can write off the cost.

Category this deduction falls into: Advertising

Parking and Tolls
Business-related parking costs beyond what you pay to park at your regular place of work are deductible, as are tolls paid during business travel. Parking violations and other tickets are not.

Category this deduction falls into: Car and truck expenses

Postage and Mailing
Stamps, other mailing costs, and the cost of renting post-office boxes are deductible.

Category this deduction falls into: Office expenses


Research and Development
You can deduct the cost of developing new products or improving existing ones. For more on this, see this IRS article on R&D deductions.

Category this deduction falls into: Other expenses


Retirement Plans
Contributions to tax-deferred retirement plans such as IRAs or Self-Employed Pensions can reduce your tax bill, because that income won't be taxed until you withdraw it from the account. You can count contributions to these plans made through Apr. 15, 2009 for the 2008 tax year. You can also deduct contributions made to employee retirement plans. For more information, see the IRS instructio


Seminars, Classes, and Training
Education that improves your knowledge and skills in your current business is deductible, but training for an unrelated trade is not. Employers can fully deduct the cost of job-related education for their workers. Employers who pay for nonjob-related education for workers can write off up to $5,250 as part of a formal educational assistance program.

Category this deduction falls into: Other expenses, employee benefit programs


Shipping
If you pay for customers' shipping and handling on the goods you sell, you can deduct those costs.

Category this deduction falls into: Other expenses.


Software
The cost of software can be depreciated over three years or deducted immediately under the Section 179 expensing, which lets you write off up to $250,000 in capital expendiutures.

Category this deduction falls into: Office expenses or depreciation.


Tax Preparation
You can deduct what you pay a tax preparer for the business portion of your taxes.

Category this deduction falls into: Legal and professional services

Trade Shows
Write off the entrance fees for trade shows, conferences, and other industry meetings. Travel costs and meal expenses may be deductible under the rules for business travel.

Category this deduction falls into: Other expenses


Web site
Deduct your hosting fees and the cost of your domain name. You can generally deduct the cost of designing and setting up your Web site as well, although expensive Web sites may have to be depreciated over three years.

Category this deduction falls into: Advertising










--------------------------------------------------------------------------------