Wednesday, November 15, 2006

Deciding the Tax Treatment

I'm calculating my overhead right now (to be able to price out rates).

The chief decision this forces is whether my LLC is going to be treated as a C-Corp or a Sole Proprietor by the IRS. If I elect the first, I file a form 1132 just like every C-corporation does. If I elect the later (which is the default), I will get treated like a Sole Proprietor and fill out a Schedule C on my personal 1040C.

Neither of these should ring out to you right away for this venture. For a services company, the default behavior where I just file 1040C would make sense. There is a very good chance I'll be doing services work right away with one company, but my real goal is more product-oriented. Corporate treatment allows some tax deductions and also changes the way income is disbursed to owners. This can be negative or positive depending on your costs, and what business you actually do (as well as your personal finances).

The form mentions a 60 month freeze period between changing tax treatment, so I'll be stuck with this choice for a good number of years.

The expensive answer is: See a CPA
The cheap now but expensive later answer is: Use the internet
The possibly expensive later answer but probably the one I'm going to do first: Read a couple books on the topic written by a CPA.

If nothing else, the third option will educate me for the meeting with the CPA so I can use that time most effectively.


Anyone know a Small Business CPA in Atlanta they like? Right now, I'm about to draw from the BBB and Atlanta Chamber of Commerce to find a good one.


Anonymous Anonymous said...

Hey Michael...

Steve Shockley, here, a GT DX alumnus. My tax guy is Chet Burgess with Brookwood Tax Service.

He's very knowledgeable about all the issues you are writing about. I couldn't recommend him more highly.

Chet Burgess, EA
Brookwood Tax Service

November 19, 2006 9:54 AM  

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