The question with small private businesses is; should you get it registered right away as a small business corporation or leave it as a small private business? There are several choices available to proprietorship businesses that are looking to register as small business corporations. Some of these choices include LLC (Limited Liability Corporations), C corporations and S corporations among others.
Benefits of registry and as a corporate or LLC
In America every month approximately 100,000 businesses are established; of these 75% register themselves immediately as Limited Liability Corporations or corporations. There are primarily five major benefits associated with registering as a corporate. These include tax benefits, protection, easier business loans, identity development and finally audit protection.
With a sole proprietorship business you have no protection related to your assets. It would be preferable to get your business registered as a small business corporation to protect your personal assets. A sole proprietor is 100% responsible for all business debts, whereas a small corporation owner is not. A small corporation owner protects himself against law suits and bad loans which are not associated with his personal assets.
Credit history protection:
Another benefit is credit history protection, as a small business corporation. As a sole proprietor, you and your company are treated as the same entity. Any financial hiccups with your business could result in a bad credit history for you. Any bad debts or default on payments will reflect negatively on a sole proprietor’s personal credit history and he is liable.
Taxes related to small business corporations:
Small business corporations are entitled to certain tax benefits or breaks, which proprietorship businesses are not. A sole proprietor is required to pay self employment tax which is currently 15.3% per year. For small business corporations, the owner also receives a salary and pays tax as a salaried employee based on the salary he receives from his business. Small Business Corporations can save almost 50% more tax than a sole proprietor. There are different types of tax breaks that a small corporation can take advantage of to save themselves a certain amount of tax. You may want to discuss this in detail with your accountant to see exactly how much and what tax you can save as a small business corporation.
IRA tax audits:
Small business corporations are far less likely to be audited by the IRS. Sole proprietors are audited more than small business corporations because, 65% of sole proprietors file inaccurate tax returns, over emphasizing expenses and undercutting profits. The ratio of proprietorship businesses vs. small business corporations that are audited by the IRS is as follows: Proprietorship businesses stand a “one in 32” chance of being audited by the IRS whereas small corporations stand a “one in 124” chance of being audited by the IRS.
Different small business corporation registrations:
As a proprietorship business, you would need to see which type of small business corporation registration suits your business and business operations the best related to tax breaks and tax benefits among other things. Different types of registrations such as LLC, S Corporation or C Corporation offer you different tax benefits.