Don’t Be A Sole Proprietor!
If your business is not incorporated, you are a sole proprietor and are on the IRS target list.
If you start a business and do not form an LLC or incorporate, you are a sole proprietor.
IRS form Schedule C is used by sole proprietors to deduct business expenses against business income. The two biggest problems for the IRS are fears that income will be under reported and personal expenses will be written off as business deductions.
Many fraudulent businesses have been discovered by the IRS, since business losses can be used to reduce tax liability, enabling the taxpayer to claim the earned income credit, i.e. free money.
For these reasons, the schedule C is the most audited form at the IRS. Just because you have a schedule C in your tax return, the IRS looks at your return a little harder.
Isn’t that reason enough to stay away from schedule C?
Service businesses, such as hair salons, and repair services along with professionals like doctors, lawyers and insurance agents are IRS targets.
The best strategy for service businesses and professionals is to change the way their business is reported.
This means you should AVOID SCHEDULE C LIKE THE PLAGUE!
Forming an LLC or incorporating your business are both great alternatives.
An excellent alternative to the “taboo” schedule C is to form an S-corporation. Perhaps the greatest benefit of the S-corporation is avoiding self employment tax–the additional 15.3% tax due on business profits.
When forming an LLC to escape schedule C, you will need other members (partners) in the business since a single member LLC must file schedule C. Another alternative is to file form 8832 (Entity Classification Election) to file as another entity such as a corporation or partnership.
Consulting a tax professional before making this decision about your entity is a wise course of action. Since each person’s situation is different, many factors need to be considered in making the decision.
Find out more about Sole Proprietors and small business taxes in order to save money by paying less taxes.
Tags: Business, business tax, finance, money, small business, small business tax, small business taxes, sole proprietors, sole proprietors taxes, tax, tax for small business, tax tips
