Courtesy of Guest Blogger, Stanley J. Bushner, Shareholder, Buckno Lisicky & Company CPA's
There are many items to consider when starting a business. High on my list is the selection of a business structure or entity that is best for you, your business and the assets it holds.
The common choices for a small business are a LLC (Limited Liability Corporation) and S corporation. Both business structures will give you personal asset protection, excluding a personal service corporation, if set up right and you follow business procedures for your chosen entity. That does not mean you should forget about some kind of business insurance.
Another important aspect of these entities is single taxation (only being taxed once at your individual income tax rates). S corporation profit will not be subject to social security tax, LLC profits will be in most cases. If you choose to be an S corporation, be careful that you give the owner/employee reasonable compensation to prevent any Internal Revenue Service audit for avoidance of social security tax. An LLC is more beneficial to own real estate than an S corporation, since transferring real estate out of S corporation may cause a taxable transaction, whereas in a LLC it does not.
So before you start or buy a business, contact your attorney and accountant to discuss the entity that best fits you and your business.