Sole Proprietorship and Partnership
The thought of establishing a new business may sound easy, but there are certain guidelines that one would have to follow in order to successfully kickstart their new venture. Some of these guidelines may be just enough to drain all the excitement out! Undergoing the usual governmental and administrative processes can be tiring much. However, it is essential that you get them done in order to see your business take wings in the future.
Don’t fret! We are here to assist you through the process of starting your business. We guarantee that you will 100% satisfied with the results. Completing many successful filings in the industry, we have brought together a panel of experts to assist you through the process of turning your dream into reality.
Are you wondering about the different ways in which you could start your business? Are you going to work alone, or with a partner? If you haven’t, we have got things covered for you. When working with us, you get to enjoy the below mentioned advantages.
When setting up a business you will obviously have to opt an entity type from among the five prevalent ones – Partnerships, S-Corporations, LLC, Sole Proprietorship, and C-Corporation. Once you choose the entity type that is right for our business, you will have to obtain a Tax Identification Number aka an Employer Identification Number. This nine-digit number is provided by the IRS and there is always certain paperwork that you need to do in order to get one.
It is often the different types of entities that confuse people. Simply put, entities are helpful when determining how you and your company will work in the future. And to make things clear, it is pretty easy to get your business registered as an entity. Nonetheless, you will have to have some pre-requisite knowledge about the type of entities in order to understand whether your business qualifies to be a particular entity or not.
Understanding Sole Proprietorship
What is Sole Proprietorship? You get to start your business and if you have decided to operate it on your own without a partner, then Sole Proprietorship is the entity that suites your business. Sole Proprietorship is sometime also known as Sole Tradership, thus one shouldn’t get confused when they come across the two terms. In case of a Sole Proprietorship, the business is run single handedly by an individual using his knowledge, expertise, skills, and capital.
Additionally, Sole Proprietorship gives the individual complete authority over decision making and the other activities. Again, the business and the owner cannot be separated from each other and they will be recognized as a single entity. All the profit that comes from the business goes directly into the owner’s pockets and the losses are also taken care of by him.
Advantages of Sole Proprietorship:
Liability or Taxation of a Sole Proprietorship:
A Sole Proprietorship isn’t taxed separately. Rather, the owner has to report all the losses and profits on their personal income tax return. Regardless of the money, you have withdrawn from the business, you will be asked to pay a tax on all profits of the business. The profit is determined by deducting the expenses from the total income
Sole Proprietorship is also eligible for the new pass through tax deduction established in the recent years. The law states that upto 20% of the net business income could be deducted as an additional personal deduction. However, there still are some requirements in order to achieve the above mentioned advantage.
Partnership, as the name suggests is an organisation under which a group of people invest their money, skills, talent, and other resources. As mentioned earlier, they get to stand together through all the associated risks and rewards
In a Partnership, each one of the shareholders gets to enjoy the same treatment, be it gains or losses. Though there would be rough spots all along the way, Partnerships or entities with more shareholders are thought to efficiently work at a faster pace.
Advantages of a Partnership
Taxation and Liability of a Partnership
In a Partnership, all the profits and losses flow down to the shareholders. This means that the partners are then responsible for the income and taxes, unlike any other entities. The primary tax Form 1065 is filed by the Partnerships and the form notes the whole amount of brought together by the Partnership, and also the amount assigned to each of the partners. Additionally, Schedule K-1 is issued to each of the partners by the Partnership. The Schedule K-1 includes the amount that is allotted to them, and they are then supposed to include their own personal income tax returns.
We make it easier for you to establish your business as a Sole Proprietorship or a Partnership. Get in touch with us at the earliest to grab the exciting packages and offers.