Fun.4.PPT.13 - Michael A Dalton | James F Dalton | Joseph M...

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Michael A. Dalton | James F. Dalton | Joseph M. Gillice | Thomas P. Langdon
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Fundamentals of Financial Planning © 2014 Money Education Chapter CHAPTER 13: BUSINESS ENTITY SELECTION AND TAXATION
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Fundamentals of Financial Planning © 2014 Money Education Chapter BUSINESS ENTITIES (1 OF 2) One of the most important decisions new business owners will make is the selection of the entity type to be used for conducting the business activities of the enterprise. The most common legal forms of business used in the United States include: Sole proprietorship General and limited partnerships Limited liability partnerships (LLC) C corporation S corporation 3 13
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Fundamentals of Financial Planning © 2014 Money Education Chapter BUSINESS ENTITIES (2 OF 2) The selection process includes consideration of the following factors: Ease and cost of formation Complexity of management and governance How transferability and dissolution are achieved Liability protection for owners’ personal assets Reporting requirements and taxation 4 13
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Fundamentals of Financial Planning © 2014 Money Education Chapter SOLE PROPRIETORSHIPS (1 OF 3) Sole proprietorships are business ventures owned and operated by a single individual. A sole proprietorship can operate under the name of the owner. It can conduct business under a trade or fictitious name. No filings are required with the Secretary of State. No annual filing fees are required. There is no transfer of assets to the entity because the entity is considered a legal extension of the proprietor. 5 13
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Fundamentals of Financial Planning © 2014 Money Education Chapter SOLE PROPRIETORSHIPS (1 OF 3) Advantages: Easy to form Simple to operate Easy to sell business assets Few administrative burdens Income is generally passed through to the owner on Schedule C of Form 1040 Disadvantages: Generally have limited sources of capital Unlimited liability No guarantee of continuity beyond the proprietor Business income is subject to self-employment tax 6 13
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Fundamentals of Financial Planning © 2014 Money Education Chapter SOLE PROPRIETORSHIPS (3 OF 3) Income Taxation and Payroll (Social Security) Taxes The cost of tax compliance is low. The proprietor conducts business under his own Social Security number. A sole proprietor does not have to pay unemployment taxes on himself. He must pay unemployment taxes for his employees. The proprietor does pay self-employment tax (up to 15.3 percent) on his own earnings and one-half of Social Security taxes for his employees.
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