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Setting Up Your Business in a Tax-Friendly Manner

» Introduction
When you’re self self-employed, deciding between establishing your business as a sole proprietorship or as a corporation is the first order of business. While there are several business categories to consider, most self-employed people prefer to establish sole – or individual – proprietorships. Sole proprietorships mean just what they imply – you and you alone are the business and all debits and credits associated with the business are your responsibility.
» Step 1
Sole proprietors prepare their taxes on Schedule C, which is attached to the IRS 1040 tax form. As stated above, most sole proprietors use their own names. If you have a different name for your business, like “Beach Haven Bait and Tackle”, it’s okay to use that instead. Just file a “doing business as” (DBA) certificate with your city, town, or community’s tax assessment office or municipal documents office.
» Step 2
As a sole proprietor you can either pay taxes on an estimated basis (as described above) or only once, on your personal income tax return. Your tax bill will be based on the income your business earns. If your business makes $50,000 in a year you pay $50,000 in taxes – even if expenses exceed that figure.
» Step 3
The other option available to self-employed taxpayers is the corporation. Unlike a sole proprietorship, where your name is on the marquee, so to speak, a corporation is a legally-recognized entity encompassing all of your business’s assets, debts, expenses, and revenues. Business owners who start larger companies with a good number of employees usually opt for corporation status for its limited liability advantages. In other words, you’re protected if something major goes awry, as the courts hold the person or persons who ransacked the office and fled to the Bahamas responsible for any corporate wrongdoing.

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