Clerk of the Circuit Court
In effect corporate profits are axed twice. Ironically, there are instances where partnerships can be taxed like a corporation and corporations can be taxed like partnerships. An election to an S corporation by a company means that it would essentially be treated like a partnership because of the same pass through benefits enjoyed by the owners of a partnership. Conversely, a partnership can elect to be taxed like a corporation. Entrepreneurs elect to form partnerships for many reason. One of which is the ease of formation.
The most typical method of partnership formation is by agreement among the partners. Forming a general partnership is as simple as filing a form with the Clerk of the Circuit Court in the county in which the business will be located and paying a relatively small fee. After registering the business name with the state, the partners should draft and sign a partnership agreement that lays out the terms under which the partnership will operate.
Partnership agreements, though not legally required, are highly encouraged…
A well-crafted partnership agreement is an important risk management tool. This document allows wide flexibility in choosing the terms that will govern a readership. The agreement can (and should) contain provisions regarding the degree and type of expected contributions of each partner, profit allocation, partner resignation or death, partnership dissolution, and any other concerns specific to the business. “(Law) Another reason to form a partnership as opposed to incorporating is independence.
Partners have the ability to act independently on behalf of the enterprise. “Each partner has the ability to act independently of the other partners, which enables the business to respond quickly to robbers by lowering the amount of red tape involved in decision-making. “(old) Partnerships enjoy many advantages that range from ease of formation to their treatment for tax purposes. My fellow partners in Rock the Ages, LLC and myself chose a partnership over corporation for tax purposes. We enjoy the benefit of single taxation.
Whereas our corporate counterparts are taxed twice on their profits. The partnership profits are passed through to each of us and taxed on a personal level. Men IRS doesn’t tax partnerships, but it does tax partners. While corporate shareholders are taxed only on dividends and capital gains, partners are taxed on all of the partnership’s taxable income, discounted in proportion to their ownership stake in the partnership. Absent a partnership agreement stating otherwise, each partner is assumed to have an equal stake in the partnership.
Partners may deduct their proportionate share of partnership business expenses from their partnership income and may also deduct partnership losses against their total income. General partners must pay self- employment tax at the same rate employees pay PICA The taxable income reported by each of the partners is mitigated by the many deductions available for business expenses such as travel costs, meals, entertainment, and marketing expenses. All of which are sizable core expenses in our industry.
A partnership allows us the flexibility to operate without the restrictions of corporate governance, and the ability to maximize our financial potential as self- employed professionals. As Chief Financial Officer, it is my responsibility to outline the best course of action for the company in regards to what type of entity gave the company the most advantages. For Pet Kingdom the best choice for us was to operate as a corporation. As a corporation we are well positioned to take advantage of tax breaks for income shifting in order to use lower income tax brackets.
We can offer employee benefit packages that include medical insurance and retirement plans. We can carry business losses forward to offset profits in subsequent years. Thus we would be able to lower our taxable income. The shareholders of Pet Kingdom also are not subject to the additional liability of a self-employment tax. Pet Kingdom is well positioned going forward to take advantage of the many tax breaks and loopholes afforded to corporations. As stated above, entrepreneurs face many decisions.
These decisions are shaped by the vision and goals set forth by the partners or shareholders. These decisions will decide how the business is run. Who will run the business? How will the profits be split? The largest of these decisions as we have discussed here is in what form of entity will the company operate. Whether as a partnership or corporation, each if run properly can be successful and meet the aforementioned Sino and goals set forth at startup. “When beginning a business, you must decide what form of business entity to establish.