What kind of taxes can i expect

Can anyone give advice about taxes. What can be taxed? would it be better to start a S corp.

Taxes… this really isn’t the place to ask. Try an accountant as everyone’s situation is different, but seriously doubt that an S corp. is the way to go.

It depends.

The least effort, and most common, is the sole proprietorship (S/P). Notary and signing agent fees, along with expenses are reported on Schedule C, self employment tax is on Schedule SE for all but the statutory notary fees (Treasury Regs. 1.1402©-2(b)(2)).

Starting a corporation or LLC is done in your state; the S corp election (Form 2553) is a separate step filed with the IRS and then, after approval, recognized also by the state. People neglect the Sub-S election more than they should; I’ve represented a number of taxpayers in trouble with the IRS and state due to oversight and failure to make the election timely (or at all).

The corporation or LLC allows you to isolate liability from the person; consult your attorney regarding this aspect.

A C-Corp is independently taxed, then again when distributed to you via dividend or stock buyback. There’s a decent amount of record keeping and two sets of returns (1120 and 1040, federal & state equivalent).

Subchapter S still requires two sets of returns (1120-S and 1040, federal & state equivalent), but profit is passed by a form called the K-1 to be taxed only at the individual level.

LLC’s generally have another option - the disregarded entity (D/E). The D/E allows the TP to benefit from the legal construct of an LLC (e.g.: liability isolation), while disregarding the D/E for tax purposes. The D/E is reported on the taxpayer’s Schedule E & SE, as above. No corporate return is necessary.

FYI, I’m a NSA only part time; my primary practice is tax representation, research and litigation.

Hope this helps.

HWB.

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As this is your area of expertise, wondering if there is/isn’t an income ‘floor’ level, below which any type of ‘business entity’ simply doesn’t have any or much benefit?

Since a Schedule C allows for deduction of expenses, the removal of employee and other miscellaneous deductions under TCJA is not so much a consideration.

The biggest considerations are legal - liability isolation and the like. Again, con

The tax reasons are generally based on the TP’s (Taxpayer’s) whole situation, including other sources of income, family situation, immigration status, retirement plans/goals

C-Corps, Sub-S’s and partnerships all require ‘care and feeding’. Corporate paperwork, franchise tax and state/federal filings can easily consume $400-900, at a minimum. IRS forms 1120, 1120-S and 1065, and their state equivalents, may be extremely challenging and a very steep learning curve.

Some customers will not do business with a S/P; in those cases, creating an entity is the price of entry.

An entity might also be indicated when the TP wants to have an ‘arms-length’ contract with the entity, such as for an office rental or vehicle sale. In that case, the entity is used as a ‘separate person’.

Summing up… If one is just starting out, I’d recommend keeping on a Schedule C (S/P), unless there are other considerations. If the legal advantages are needed, the D/E (see prior post) allows one to use an LLC for its entity purpose, but report it on a personal return.

And, yes, I’m doing this post for a mental break between completing last minute client returns.

Hope it helps,

HWB.

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Sorry, hit the touchpad while pressing ‘reply’ button and deleted stuff.

Second paragraph should read:

The biggest considerations are legal - liability isolation and the like. Again, contact your attorney or legal advisor for guidance.

HWB.

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One last thing… this link provides a good summary:

HWB.

Excellent! Thank you for sharing. Am sure the synopsis will help many understand the situation. This topic is one I’ve seen asked many times, but never have I seen anything that laid out the pros & cons as well as this.

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