Tax Tips BlogTax Tips for Individuals and Small Businesses

I often have clients ask me to explain the differences between business entity types and which type of entity is the best for their company.  Honestly it depends on the goals you have set for your business and the resources you have available to you.  For tax filing purposes it is important to keep your business compliant.

Business Compliancy Tips:

• It is essential to keep a separate bank account for all companies you own or operate.
• Keep accurate accounting records (you may have to hire someone knowledgeable to help you with this or get some training)
• Check with your Secretary of State for business entity filing fees and requirements
• Check to ensure your state does not require a special business license to operate
• Be sure to get your EIN or Tax ID number
• If you are selling retail items you will need to complete a vendors registration form and state taxes may be applicable

If you are thinking about going into business with your spouse and do not want to incorporate or set up an LLC, you must form a partnership.  Regardless of the fact that you live in the same house and are operating the same company, the IRS sees any company owned by two people as a partnership.

What Business Entity type is right for you?

Business Entity Comparison Chart

Dangers of Mixing Business with Personal Transactions

It is important to remember that the businesses can only benefit from their limitied liability status if they operate their businesses as though they are a company.  This means it is important to keep good accounting records and separate bank accounts.  If you mix business and personal, by paying for personal items from your business account or purchasing business items on your personal account, a judge can determine that since you mix business and personal, you can lose your limited liabilty status and your personal assets are at risk if sued.

I hope this helps you determine what type of business you want to set up.  Remember that in some states a lawyer and/or CPA may be needed to setup a C Corporation.  I wish you luck with your business venture and remember that Highbaugh Tax is authorized to file taxes in all 50 states and we would be happy to help you with your business set up or tax prep needs.