What are the different Business Types?

If you are considering starting a small business, you may be trying to sort out the different types of businesses and wondering which type is best for you. Each type is best for a specific purpose or situation, relating to taxes, liability, and your ability to control the profits and losses of the business, so it is best to consult with an accountant or tax professional, when making your choice.

Here are the different types:

Sole Proprietorships

A sole proprietorship is a business operated by one individual; the business is considered part of the individual, not a separate entity. The business profits and losses are included on the individual's personal tax return, and the individual retains personal liability for the business debts and lawsuits.

Corporations

A corporation is an entity which is separate from its owners. The corporation is formed under the laws of the state in which it is operating, with Articles of Incorporation.

Subchapter-S Corporations (S-Corporations)

A subchapter-s corporation (or s-corp) is a corporation which has the benefits of limited liability of a corporation but which is taxed as a partnership, with the income or losses flowing through to the individual shareholders.

Limited Liability Companies

A limited liability company (LLC) is not a corporation, but it has the liability protection of a corporation and other benefits, like ease of formation. You can have a single-member LLC which pays taxes like a sole proprietorship, or a multiple-member LLC which pays taxes like a partnership. You can even have an LLC that's taxed like a corporation. There are few drawbacks to forming an LLC.
You may also want to look into the Series LLC, a new type of LLC which is available in a few states. In a Series LLC, you can have a parent LLC and many sub-LLC's, each with separate liability.

Professional Corporations (PCs)

A professional corporation is a specific type of corporation for professionals, such as attorneys, doctors, architects, and accountants. In some states, these professionals can form a corporation, but with the distinction that each professional is still liable for his or her own wrongful professional actions.

Partnerships

A partnership is a business entity with individuals who share the risk and benefits of business. A partnership may include general partners, who bear the liability for partnership debts and for actions of the partnership. It may also include limited partners who are merely investors and who do not share in the day-to-day operations of the business and who do not share in liability.

General Partnerships

A general partnership is a partnership which includes only general partners. Under this structure, all partners participate in the day-to-day operations of the partnership and all partners bear personal responsibility for debts and liabilities of the partnership.

Limited Partnerships

If a partnership has both general partners and limited partners, it is sometimes termed a "limited partnership." A limited partnership is an entity distinct from its partners. As with a "partnership," the general partners deal with the day-to-day operations of the partnership and they have liability for debts and for actions of the partners. Limited partners do not participate in day-to-day operations of the partnership and they bear no liability for debts or actions of the partnership.

Limited Liability Partnerships (LLPs)

Limited Liability Partnerships (LLPs) are formed with general partners, but all general partners are shielded from liability for the acts of other partners or employees. The LLP is similar to a limited liability company (LLC), but the LLP operates under partnership rules.

Limited Liability Companies (LLCs)

A limited liability company (LLC) operates like a partnership, but it has members instead of partners, and an operating agreement instead of a partnership agreement. The advantage to an LLC is that the liability of members is limited to their investment. Most states allow a single-member LLC to form. A single-member LLC is taxed as a sole proprietorship, while a multiple-member LLC is taxed as a partnership.

Back-to-School Tips for Students and Parents Paying College Expenses

Whether you’re a recent high school graduate going to college for the first time or a returning student, it will soon be time to head to campus, and payment deadlines for tuition and other fees are not far behind.

The IRS offers some tips about education tax benefits that can help offset some college costs for students and parents. Typically, these benefits apply to you, your spouse or a dependent for whom you claim an exemption on your tax return.

• American Opportunity Credit. This credit, originally created under the American Recovery and Reinvestment Act, is still available for 2012. The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education at an eligible institution. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you don't owe any taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment.
• Lifetime Learning Credit. In 2012, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student.

You can claim only one type of education credit per student in the same tax year. However, if you pay college expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. For example, you can claim the American Opportunity Credit for one student and the Lifetime Learning Credit for the other student.

• Student loan interest deduction. Generally, personal interest you pay, other than certain mortgage interest, is not deductible. However, you may be able to deduct interest paid on a qualified student loan during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you don’t itemize deductions.

These education benefits are subject to income limitations, and may be reduced or eliminated depending on your income. For more information, visit the Tax Benefits for Education Information Center at IRS.gov or check out Publication 970, Tax Benefits for Education, which can be downloaded at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

Links:

• American Opportunity Tax Credit
• Tax Benefits for Education: Information Center
• Publication 970, Tax Benefits for Education
• The American Recovery and Reinvestment Act of 2009: Information Center
• Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)

YouTube Videos:

• Education Tax Credits and Deductions - English | Spanish | ASL

Podcast:

• Education Tax Credits and Deductions - English