One critical issue we will need to make a decision on is the business structure you should start in order to keep your benefits at a maximum level. In addressing the business structure decision, one important aspect that should be taken into account is the tax implications of choosing either of the business structures. However it is important that the business structure decision is not solely made through tax analysis because doing so would be betray negligence. In this memo, I will address the various tax implications of various business structures. It is important to remember decisions on the type of structure to set up should not be based on the tax planning bit alone. Sole proprietorship These are a common type of legal structure. Tax implications …show more content…
Estimated taxes may be paid in four equal installments throughout the year as follows 15th of April, 15th June, 15th September and 15th January of the following year. It should be noted that the personal tax rate may be higher or lower than the corporate tax rate depending on the income level of the sole proprietor. This may well determine the tax benefit that accrues to the business owner as a result of starting such a business structure. It is easier to transfer the ownership of the business to your daughter as you have full control of the business. A sole proprietorship is the most recommendable business for you considering your business …show more content…
This is a corporation where as the owners of the business you will have limited liability in regard to the debts of the company. However these types of companies are given a different treatment in regard to taxation from the regular corporation also called C corporations. During incorporation, in addition to the memorandum and articles of association, an election using form 2553 to be taxed in accordance with subchapter S of the Internal Revenue code will be filed by you and your daughter, as the shareholders in the S corporation. This means that the corporation will pay no taxes but like partnerships the profits will be passed through to the shareholders to be filed on your individual tax returns. Due to the passage through of business incomes and losses, there is only one level of federal taxation and therefore this kind of arrangement helps avoid double taxation. Considering taxes, the business structure looks attractive but may be limiting when it comes to setting up as there are many legal requirements that may lead to huge capital outlay. Looking at the investment of $690,000, I would not re commend this type of business