Corporations Incorporating your business creates many advantages for you. Incorporating will allow you take advantage of many tax deductions, and protect your assets from lawsuits. If you're thinking of incorporating your business, there's no better way to protect yourself, and save some of your hard earned money. There is a lot of information in regards to incorporations, and it can seem overwhelming. The following is a brief explanation of the different types of entity structures to consider. A C-Corporation is a separate legal entity from the people who own it. It has a life of its own. It can own assets, incur liabilities, and provide goods and services to the general public. Every C-Corporation starts out as a C-Corporation and remains as such unless it makes a subchapter—an S election. C-Corporations are often the first step in reducing taxes and protecting assets. They can additionally provide tax deductible expenses. C-Corporations offer approximately 300 deductible expenses of which you can take advantage. If you want to take your company public, you will need a C-Corporation structure to do that. The C-Corporation additionally offers the benefit of having a fiscal year end either 3/31, 6/30, 9/30, 12/31. S-Corporations: As we said previously, an S-Corporation, starts out as a C-Corporation. It is then converted by a simple filing of form 2553. By making this election, you are choosing to have the corporation’s income treated like the income of a partnership or sole proprietorship. The income is passed through to the shareholders of the corporation. S-Corporations have approximately 75 allowable expense deductions. They can be used as part of a multi-corporation strategy and for newer businesses. S- Corporations can flow this loss through to the individual which reduces their personal income, while losses to C-Corporations do not pass through to the individual. A Limited Partnership has two aspects to its structure: one or more General Partners and one or more Limited Partners. Generally speaking, limited partners share in the profits of the partnership but are shielded from its liabilities. They have no say in the management of the partnership’s activities. In most Limited Partnerships, the limited partners are passive investors. The general partner has the benefits and responsibilities of actively managing the Limited Partnership’s activities. In exchange for this, the general partner also has unlimited financial and legal responsibility for the losses or liabilities of the Limited Partnership. A great way to protect the General Partner against this unlimited liability is by making the General Partner a corporation. Limited partnerships are often used to hold real estate and other investments, where the parties involved don't wish to be on equal footing. In other words, they work well when the investors want to remain passive and they desire to have someone else (i.e. the General Partner) manage the partnership’s activities. Limited Liability Companies (LLCs) are a newer type of entity, but they have now been around long enough to be time tested. It is a separate entity for asset protection purposes. If sued, only the assets of the LLC are at risk. The participants in an LLC are called Members, and unlike a Limited Partnership which is designed for the participants to be treated differently, an LLC’s members are all on equal footing. This gives all members an opportunity to actively participate in the LLC’s activities. It is a great vehicle in which to hold real estate and other investments. Trusts are powerful in two ways. First, they take the property outside of the reach of creditors. Secondly, they take the property outside the reach of beneficiaries with insatiable financial appetites. So, if you want to give a loved one a gift, and especially the benefit of the income it generates, but you are unsure of their ability to properly manage it, a trust may be the solution. Maximizing Tax Strategies There are two tax systems in the United States: a) the tax structure for employees b) the tax structure for businesses Employees get taxed on what they earn and that money is taken out of their paycheck before they even get their check to spend what’s left. The corporate structure allows you to earn money, incur appropriate business deductions, then you're taxed on what’s left. Most new business owners and investors are paying expenses as personal deductions and not taking advantage of their full business deductions. The following is a list of typical business deductions that you can take advantage of to minimize your tax burden: • rent (office or home office) • utilities • entertainment • meals • automobile • gas • insurance • office supplies • computer equipment • education • travel • legal fees • accounting/bookkeeping fees • staff • gifts NEXT MY MONEY ANSWERS: HOME GETTING PAST THE PAST ASSESSING YOUR SITUATION FACTORING MAKING THE PLAN SPECIAL NOTES ABOUT DEBT DECIDING IF BANKRUPTCY IS RIGHT FOR YOU DEBT CONSOLIDATION YOUR LONG TERM GOALS STARTING A BUSINESS CORPORATIONS PEOPLE YOU WILL NEED STUDENTS AND CREDIT