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Is Sole Proprietorship the Right Business Structure for You?

You have a skill or a service to provide and now is the best time for you to start a business of your own.  Having done some research on the various types of business structures has left you with more questions than answers.  The most common forms of business entities are a sole proprietorship, a corporation, a limited liability company or a partnership. A sole proprietorship is basically an individual running an unincorporated business.  It is an attractive option for you, as you have limited assets for start up money and wish to endeavor into entrepreneurship as a sole owner.  It is a business structure that is used by many freelancers, consultants, contractors and home based businesses.  There is minimal record keeping required, as it is not formally incorporated with a state filing. It has flexibility, as it is not restricted by a formal business structure. That means there are no annual meetings, board meetings and the owner can make all the business decisions independently. Without having employees, there is no concern about group health insurance, workers’ compensation coverage and the like.  But is it really the right option?

   A sole proprietorship is a legal enterprise, whereas one person represents the company legally and fully. It is the most common business entity, however with it comes many legal, financial and business risks. That said, you have unlimited liability for the debts of the business. For example, a lawsuit from a creditor or a customer, for business related debts, injuries or insufficient service can put you into personal bankruptcy. In a sole proprietorship, taxes are filed with your personal taxes and an estimated tax amount is sent to the Internal Revenue Service quarterly.  In the event of an Internal Revenue audit, by co-mingling your business and personal taxes, you will be audited for both.   Another aspect of being a sole proprietor is that you are in charge of every detail of the business.  This includes, but is not limited to, marketing, financing strategy, leadership, providing customer service and actually doing the work. This may sound appealing, but in actuality, it can be a daunting task.   Even in a small business, this usually means long hours for work which can result in physical and mental exhaustion. Or if illness or injury is incurred, this could be the reason your business has failed.   Business loans are generally not available to sole proprietorships.  Most owners use personal funds, personal loans or credit cards which can come with high interest rates.  It is difficult to raise cash to grow the business, although there are some options such as crowd funding, angel investors and business grants.

The Boutty Law Firm understands the complicated world of business law and can provide guidance in choosing an appropriate business entity for your organization. There are pros and cons for each one and it is crucial that you make the right choice.  The Boutty Law team can assist with necessary county and state licenses, zoning and permits that are needed for many business operations.  Every business is unique and you need to be well informed about the legal ramifications of choosing the right or the wrong business structure.  Call today for an appointment.   

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6 Tax Deductions for Businesses

Many entrepreneurs know that there are lots of things to include on their business tax returns to help them manage the costs of running a business. While there are limits as well as timing constraints, most expenses can be written off and this is definitely something to take advantage of this upcoming 2018/2019 tax season. Many of the same type of deductions that apply to sole proprietorship can also be used for other business entities including C and S Corporations, limited liability companies, and partnerships. Depending on what type of business you have, the rules may apply differently to you, but more than likely you’ll have much to gain by considering these potential tax deductions for your business:

  1. Wages and Salaries

Most forms of payment to employees are considered tax deductible expenses for businesses. These include bonuses, commissions, and taxable fringe benefits, in addition to the common salaries and wages of employees. Employee payment should not be confused with payments to sole proprietors. Payments to these entities are not considered wages, and are therefore not tax deductible.

  • Freelance and Contract Labor

Similar to employee wages, payments to independent contractors and freelancers are deductible business expenses you can claim on your taxes. In order for the deductible to be valid, the contractor or freelancer will have needed to have been paid a minimum of $600 for the year, and it will be required that you issue a 1099 tax form.

  • Business Supplies

All great businesses need resources and supplies to run effectively. The good news is that in most cases you are able to include these supplies on your tax form as a deductible. These supplies are deductible business expenses if they are purchased or furnished to customers.

  • Car and Truck Expenses

Operations and transportation is a huge element and a source of expenses for many businesses. Most small businesses use some type of vehicle, and the cost of operating the vehicle is deductible, but only in the case that there are records to prove business usage. When deducting costs, it is not required to keep receipts of expenses if you use the IRS standard mileage rate of 54.5 cents per mile for 2018. The standard mileage rate can be used regardless of whether you lease or own the vehicle.

  • Utilities

If you didn’t already know, the electricity bill for powering your business facility is fully deductible from your business taxes. This can include mobile phone expenses as well as a second landline from your home office.

  • Rent

Luckily, the rent for your business space is also deductible from your small business taxes. This applies regardless of the size of the facility or whether it is an office, boutique, factory, or other facility.

The Boutty Law Firm works with many small businesses across Central Florida, from corporations, to partnerships, and more. For legal assistance with your commercial business needs, contact our law firm at 407-216-2766.

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