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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10430
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am looking at forming a sole proprietor LLC in Arizona. My

Customer Question

I am looking at forming a sole proprietor LLC in Arizona. My annual household income is 55k and I would be running this business on the side out of my condo. What sort of impact would this have on my taxes and should I file as a disregarded entity or corporation?
Submitted: 3 years ago.
Category: Tax
Expert:  Lane replied 3 years ago.

NPVAdvisor :

Hi,

NPVAdvisor :

The single member LLC and the sole proprietorships are both considered disregarded entities ... this really just means that there's no BUSINESS tax return to file ... I would recommend starting with the LLC... as it is as flexible as a partnership but still provides the liability protection of a corporation

JACUSTOMER-4bpbfbry- :

Hello

JACUSTOMER-4bpbfbry- :

How wiuld the LLC effect my taxes?

NPVAdvisor :

As EITHER a single member LLC or a sole proprietor, you'll just attahe a schedule C to your tax return and all of the business profit (or loss) will flow to line 12 of your person return (business income or loss) ... and again, of the two I would do the LLC because (1) you get that corporate liability protection which the sole proproetorship DOES NOT provide and (2) you can always elect to be taxed as a, S-Corp later

NPVAdvisor :

On the taxes, Sope props, LLC's partnerships ALL are what's called pass-through entities, meaning that the income (and expenses) of the business flow through to your personal return ... so on that schedule C for you LLC you can write off ALL of the legitimate business expenses and will only pay taxes on the profits

NPVAdvisor :

Why did you do that?

NPVAdvisor :

That afects my ratings and my pay

NPVAdvisor :

We're not even close to done here

NPVAdvisor :

What do I need to do to get you to upgrade that?

NPVAdvisor :

All right I'll go ahead and give you the information and hope you'll do the honorable thing ... and I refuse to oversimplify

NPVAdvisor :

(1) LLC is a pass through for taxes ... You use the schedule C when you file your return to list all income and expenses and only the income (after subtracting expenses) is taxable you can even show a tax loss

NPVAdvisor :

(2) sole proprietorship is the same (BUT, no liability protection, your business creditors or lawsuits can come after you personally)

NPVAdvisor :

(3) Sub-chapter-S Corporation (sometimes called an S-Corp) is also a passthrough, but must file a separate business return and has much more administration and paperwork ... but still doesn't pay it's own taxes... the s-corp tax return rather than having a tax bill is "Flowed" to the individual tax return, just as the Sole prop and the LLC

NPVAdvisor :

(4) C-roporation files its own return and DOES pay it's own taxes, therefor you will be taxed doubly, ...1st the corporation pays its own corporate taxes and then you are taxed on any dividends you take out personally

NPVAdvisor :

Full circle back to your questions, if you set up an LLC through your state and you are the only owner you will be treated as a disregarded entity by IRS .. you'll just do your taxes and attache the schedule C for your business ... you will do the same for a sole proprietorship .... for an S-Corp or a C-Corp you will have to file your own tax return AND the business return Form 1120-S or form 2210 respectively, and will only pay a separate corporate tax is you choose the C-Corp

NPVAdvisor :

I hope you'll reconsider my rating ... I'll be glad to answer any follow-up questions ... and I can provide any of the forms you need here

NPVAdvisor :

Let me know

NPVAdvisor :

Lane

Expert:  Lane replied 3 years ago.


Just checking back in to see if you wanted to go any deeper on this, as I never saw you come back into the chat.

Let me know if you'd like to talk this through some more.

Again of the two disregarded entities (LLC and Sole proprietorship, I would use LLC because of the liability protection.

And of the two corporation choices C-Corp and S-Corp, I would use the S-Corp to avoid the double taxation of the C-corp and provide for lower capital gains treatment in the flow-through S-Corporation.

Let me know what I can do to make you a satisfied customer.

Lane

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