Consulting a tax expert for individual advice should be considered a priority above any advice found on the Internet. General suggestions here will get people on the right road, knowing what questions to ask a tax preparer about their specific business advantages and guidelines.

Sole Proprietorship, Limited Liability Company or Corporation

The first item of business when planning a home based business is deciding on the business structure. Many options are available:

• Sole Proprietorship
• Partnership
• Limited Liability Company (LLC)
• S or C Corporation
• Non Profit Corporation

Corporate and LLC structures are considered an entity of their own by the legal system. This means that a corporation pays its own taxes and be represented in a court of law the same as any individual as long as board meetings and other record keeping is followed as required by corporate laws. One of the primary reasons these structures are used is to protect the assets of the corporation and of the individual owners.

Sole Proprietorships and Partnerships on the other hand do not have the same rights of individuality. Taxes are filed along with the personal taxes of the individual owner(s). If one of these structures are sued in court there is a high probability that the owners will he held financially responsible in the suit.

The rule of thumb is if the company owners are purchasing expensive equipment or real estate during the business start-up or have large personal financial equity then a corporation would be the best choice. If the startup is a small home-based business with low investment value and the owners do not have a high personal net-worth, then the need to incorporate is reduced.

For Profit or Non-Profit; Tax Implications and Business Purpose