How To Avoid 3 Common Legal Mistakes Small Business Owners Make

1. How To Choose The Right Business Structure: Sole Props, LLCs, S-Corps

When deciding on what the right structure is for your business it’s important to seek the advice of an attorney and a tax professional. Things to consider:

1.Your personal tax circumstances – examples: Are you married? Have children? Own property?

2.The filing costs – If you’re having a cash flow concern this could be a determining factor when choosing a business entity. Some are entities are relatively inexpensive to file while others can be more costly. Have your attorney review the potential costs for any entity recommendation.

3.Ease – Some entities will require yearly maintenance and filing, while others do not. If you’re a person that prefers not to deal with the hefty paperwork you may want to discuss with your attorney an entity option that requires less paper pushing.

4.Tax benefit vs EVERYTHING else – Speak with your tax professional about the tax percentage benefits versus all the other factors (like those listed above) when choosing the right entity. It may be significant enough, it may not. Once you know the benefits, weigh them against the liabilities so you can make an informed decision.

Here’s a quick list to weigh the pros and cons of the entities primarly used by online business owners (note: this is not a comprehensive list of all the available business entities).

Sole Prop

Advantages – Little to no paperwork. Low maintenance. Affordable.

Disadvantages – No legal protection for your assets. No tax benefits. No opportunities for growth or expansion.

S-Corp

Advantages – Protection for your personal assets. No double taxation. Tax benefit. Heightened credibility with customers, clients and vendors. Opportunities for growth via shareholders.

Disadvantages – Formation and ongoing fees can get costly. May be heavy on paperwork. Higher IRS Scrutiny.

LLC

Advantages – Protection for your personal assets. Easier filing and management requirements. No filing a separate business tax return.

Disadvantages – No tax benefit (you’re taxed at your personal tax rate). However, some states and the IRS may let you get taxed as an S-Corp.

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