Poloniex llc vs soleil
With the Sole Proprietorship, you have the following benefits: You are not required to pay any specific business taxes or unemployment taxes.
You can still enjoy just about all of the same tax benefits of being self-employed, from turning some of your personal expenses into business expenses business use of your home or car, for example , utilizing self-employed retirement plans like Simplified Employee Pension Individual Retirement Accounts SEP IRAs for higher deductions, writing off regular business expenses such as marketing costs , writing off business travel costs, writing off costs to entertain clients and more.
However, with the Sole Proprietorship, you also have the following drawbacks: This means you can be sued personally for commercial activities, putting your personal assets at risk.
This could limit the amount of funds available to grow, develop, and sustain your business. You can see whether your business has a credit score established and track it for free on Nav. You will have a lower amount of market credibility by not operating under a trade name. Incorporation entity choices include the following: With the LLC, you will have the following benefits: A higher level of market credibility. Liability protection against commercial debts, lawsuits and other obligations.
This will avoid many potential equity partners and financial institutions from categorizing your request as a personal loan rather than a business loan , which brings all sorts of caps in terms of approval amount potential. And of course, you will enjoy all of tax benefits of being self-employed. State-related paperwork will be required, including any specific industry licensing. This is because a sole proprietorship is considered by the IRS as a "disregarded entity. A single member LLC offers the major legal advantage of protecting your personal assets from the creditors of your business.
By setting up an LLC, you also avoid paying both personal and business taxes on your freelance income. As a "pass-through entity" all the income and expenses from your LLC get reported on your personal income tax return as the business operator. An S corp , like an LLC, protects you personally from any business liabilities you may be involved in from a financial perspective. Establishing an S corp also helps you avoid paying both personal and corporate taxes.
However, S corp owners, unlike owners of sole proprietorships and LLCs, pay themselves salaries and receive dividends from any additional profits the business may earn. This adds another dimension of complexity to the tax situation and required tax filings that S corp owners must comply with. Most notably, S corp owners must file business returns, rather than using their personal return to file their business taxes.
It is worth noting that under each scenario you would be allowed deductions on pre-tax expenses, such as travel, computers, phone bills, advertising, promotion,car expenses, and health care premiums. You may also be able to deduct home office expenses, if you work from home. Please keep in mind that these calculations do not take into account any formation, legal or accounting services costs or payroll tax requirements if Fred happened to have employees.
From this example, you can see that Fred is relatively indifferent as to entity structure because the self-employment savings would be counter-balanced by an increase in NYC business taxes as well as Unemployment Insurance. It is also important to note that while this example details the local and state taxes specific to the New York area, which includes business taxes on both of these entity types, if Fred lived elsewhere, he would be subject to the specific taxes in that area, and he would be wise to seek professional advice before determining which type of entity he should select.
In addition to tax implications one also has to weigh the filing fee and other requirements for entity formation. New York imposes a publication requirement on the formation of LLCs which can be cost prohibitive for some individuals.
Another key point to keep in mind that merely incorporating in another state would not reduce your tax burden in your home state as tax is determined based on where the business is operated and not merely incorporated. The moral of this example is that selecting the right type of entity for your new fully-fledged freelancing business is a decision that deserves thoughtful analysis and should be done with the help of a qualified financial professional to avoid potential tax issues in the future.
Materials in this article are provided for informational purposes only.