STARTING YOUR BUSINESS

When you decide to go into business, the decision of what type of entity to form (choice entity), will have a significant impact on the tax burden that you will incur, depending on nature of the business that you are in. The tax implications behind the different business entities can be an extremely complex subject, requiring specialized education in tax law to fully understand the differences.

Form Your Entity

Entities are formed at the State level by filing documents with the Secretary of State within your specific State of residence.
You can hire an attorney to do it for you or simply go the website of the Secretary of State that you plan on doing business, and form the entity online.

If Your Entity is a Corporation

1- Decide on a name for your new business: Ending in Inc, or PA, depending on specific state law
2- Determine your principal address
3- Decide who is going to be the initial officers (Secretary, treasurer and president) a single officer can hold more than one title.
4- Decide whom will be your registered agent and at what address you want your registered agent to be to receive official correspondence.
5- Decide how many shares of stock will be authorized by the Corporation (I used 1,000)

If Your entity is an LLC

1- Decide on a name for your new business: Ending in LLC
2- Determine your principal address
3- Decide who is going to be the initial officers (secretary, treasurer and president) a single officer can hold more than one title.
4- Decide whom will be your registered agent and what address you want your registered agent to be at to receive official correspondence.
5- Decide how many members will own the LLC

There is nothing wrong with one person being listed for everything above, it may be just you.
The entity choice should be based on state law grounds and how the asset protections of that State law apply to your type of business .Taxability of that entity, once formed, is a separate issue altogether. Most business owners do not understand this concept. A common question of business owners is "Should I be taxed as an LLC or a sole proprietor." As you will learn in the next paragraph, there is no difference.

Problems

For income tax purposes, the formation of the entity is not as important as the "election" that you will make to determine the taxability of that entity under the tax code. You may form a multi member LLC, but you will elect to have it taxed as either a partnership or a corporation, by filing Form 8832. If you formed a C-Corporation, you may elect to be taxed as a S-Corp by filing the Form 2553. Blowing the election can cause serious problems.

Forming a multi member LLC is considered a tax partnership by default, requiring the filing of an annual partnership return, Form 1065. The only way you can get out of this is to file a Form 8832 requesting to be taxed as a corporation. There is an obscure IRC Code section 761(a) that will allow the members of a tax partnership to elect out of Subchapter K, the partnership law, by reporting the income on their individual Form 1040 tax returns, but it only applies to partnerships owning investments that have specific attributes. The partnership entity remains a partnership entity for purposes of the limitation on allowable credits and other tax attributes. Strict guidelines apply and if you don't know what you are doing, you can get into trouble.

A single member LLC is a disregarded entity by default under Treasury Regulation 301.7701-2, which means that you will file a Schedule C as a sole proprietor unless you make a formal election to be taxed as another entity type.

I formed The Entity, Now What Do I Do?

1- Go to the IRS website and apply for a federal employer identification number (FEIN). This number will be similar to a social security number for an individual.
2- File a form 8832 with the IRS and make your choice how you would like the new entity to be taxed (8832). You can still do this, even though you are not required to and have chosen the default tax entity under the regulations. Example: You are a single member LLC that wants to be taxed as a Disregarded Entity under the regulations, you will check the box under "Disregarded Entity."
a- If you are a corporation and would like to be taxed as as an S-Corporation, you will additionally need to file a form 2553.
b- Technically, if you formed a corporation in the beginning, you do not have to file the form 8832, because you are a corporation by default. However, if you did file the 8832, it would not really matter, the IRS would just send you a letter of acknowledgement.
3- Register with the State Department of Revenue where you are operating and obtain an unemployment tax account number, so you can file unemployment tax returns.
4- Find out if your business sales are subject to State sales taxes and if so, register with the State Department of Revenue where you are operating and obtain a sales tax account number.
5- Pay yourself a reasonable W-2 wage if you are a corporation for taxation purposes and you are providing services to that corporation. Some States require you to pay unemployment taxes if you receive any cash distributions from the company, so be careful of getting nailed by your resident State for not filing payroll tax returns on partnership entities. The maximum taxable wage base in FL is $7,000, so the tax is less than $200 per year. The penalties, however, will be substantial for not filing the returns.

Pay attention to the small business survival tools

The Reports You Will Be Required to File During the Year.

Assuming you are a Florida S-Corp, subject to sales tax, you will be required to file these reports each year:
1- Form 1120S Federal corporate tax return
2- Form 941 Federal quarterly payroll tax return
3- Form 940 Federal annual unemployment tax return
4- Form UCT6 FL State unemployment tax return
5- Form DR-1 registration to file FL State returns
6- Form DR15 Fl State sales tax return
7- Form DR405 FL tangible property tax return
8- Form W-2 and Form W-3 with the Social Security Administration
9- I-9 Report for every employee you hire kept at the business location