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emc011075
emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3166
Experience:  IRS licensed Enrolled Agent and tax instructor
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CAN ONE DEDUCT MORE WIDE RANGING EXPENSES ON SCHEDULE C OR

Customer Question

CAN ONE DEDUCT MORE WIDE RANGING EXPENSES ON SCHEDULE C OR MORE THROUGH A CORPORATION
Submitted: 2 years ago.
Category: Tax
Customer: replied 2 years ago.
WHAT IS A BETER ENTITY TO RECEIVE REVENUE THROUGH? AN LLC AS A DISREGARDED ENTITY OR CLASSIFIED AS A CORP FOR TAX PURPOSES? OR AN S CORP? OR WHATEVER WILL PRESERVE WEALTH AND ALLOW FOR EASY DAY TO DAY MANAGEMENT.
Expert:  emc011075 replied 2 years ago.

Hi. My name is ***** ***** I will be happy to help you.

LEGITIMATE business expenses are deductible regardless if you are sole proprietor (Schedule C) or corporation or Scorp. The difference is how the income is taxed and subsequently distributed to owners/shareholders. Single member LLC or sole proprietor is the most simplest form and the easiest to file. If you elect Scorp or corporation status, you will be treated as employee of your own corporation, which means payroll taxes and payroll returns, you will have to file corporate return as well as your personal return. If you elect Scorp, profit will not be taxed at corporate level, it will path through to you and included in your personal taxes. With corporation the profit will be taxed at corporate level and than dividends distributed to you will be taxed again on your personal return (double taxation). You can use Scorp loses to offset your other income, you cannot do that with Corporation. There are certain advantages and disadvantages with each of them.

Expert:  emc011075 replied 2 years ago.

If you are just starting now and you don't necessary need the corporate perks like profit sharing, a good choice is single member LLC. It will give you the liability protection of a corporation but at the same time will keep taxes and day to day finances management simple. Let me find a detailed comparison chart for you.

Expert:  emc011075 replied 2 years ago.

Here's a comprehensive chart of business entities: http://www.nolo.com/legal-encyclopedia/ways-to-organize-your-business-chart-30065.html

Expert:  emc011075 replied 2 years ago.

And here's another article about business structures:

http://www.nolo.com/legal-encyclopedia/business-ownership-structure-choose-best-29618.html

I would strongly suggest to read some books, talk to an accountant or tax professional and educate yourself about the subject before electing to be taxed as corporation or scorp. Many people run into problems by electing corporate status without knowing the filing requirements and tax consequences of their election.

Let me know if you have any questions.

Customer: replied 2 years ago.
I want the advantages of a pass thru. IE, income is not taxed etc until all expenses are first paid and with whats left i pay tax when i draw funds. Can i build up the entity value by leaving the remainder of the money in the entity until needed and thus untaxed until then?
Expert:  emc011075 replied 2 years ago.

Path-trough entity means the PROFIT (after expenses) is transferred to you and taxed at your personal return, regardless if you leave it in corporation or actually take it out, take a distribution. You can only keep retained earnings if you select corporation, which means the profit will be taxed at corporate level. You can choose to take the distribution/dividend or keep it in corporation. You cannot deffer tax on the profits.

Customer: replied 2 years ago.
Ok, with your experience and wisdom please choose a hypothetical best choice entity and an m.o. based on the following. Income is generated deposited regularly 3-4 x's per month. The lions share goes to maintain one persons expenses and perqs within reason (health, property, casualty insurances; pension/profit sharing, lines of credit, vehicles, expense acct, travel, ent, etc. The remainder is placed in a tax advantaged vehicle for growth. A plan is established for responsible spending and to meet long term goals. All risk is minimized to best efforts. Growth goals are ambitious but preservation is key. Forecasts show steady progress so once established, this plan should be enduring. It would help to know the basic day to day functions/routines. This can be figured out but why not make it easy. With that info, hypothetically, in CA and knowing all included, what appear to be the hypothetical best practices from here on out?
Expert:  emc011075 replied 2 years ago.

I am not sure what are you asking. You choose the business entity based on the type of business you are running, not based on your personal life needs or goals. If you are, for example selling/reselling items on Ebay or similar websites, you don't need a corporation, or even LLC. If you flip houses with or without a partner, you need certain level of limited liability protection, so LLC would be a good choice. If you plan to run multi thousand dollar shipping business with warehouses in several states, you would most likely want a corporation or scorp. Business entity alone is not a tax advantaged vehicle, it is the way you run the business that could be tax advantageous. You can get a pension plan through any of the business entities, if you want profit sharing, you will have to create a corporation (which also result in double taxation). There are advantages and disadvantages with every business entity but none will guarantee you steady growth or long term goals.

What kind of business do you have? What are you doing to generate income?

Expert:  emc011075 replied 2 years ago.

I see you read my respond. Do you have any questions? I there anything else I can help you with today?

And if you found my answers helpful, a Positive Rating would be greatly appreciated. Thank you.