When starting a business in Coeur d’ Alene, the most important decision is the type of Idaho legal structure you select for your company.
The most common forms of business in CDA:
- Sole proprietorship
- S corporation
- Limited liability company (LLC)
- Limited liability partnership (LLP)
The least complex structure in Coeur d’ Alene is the Sole Proprietorship, which typically involves just one individual who owns and operates the business. If you intend to work alone, this structure may be the way to go.
The Coeur d’ Alene tax aspects of a Sole Proprietorship are appealing because the expenses and your income from the business are included on your personal income tax return, Form 1040. Your profits and losses are recorded on a form called Schedule C, which is filed with your 1040. The “bottom-line amount” from Schedule C is then transferred to your personal tax return.
If your business will be owned and operated by several individuals, then you should look at structuring your business as a partnership. Partnerships come in two varieties: general partnerships and limited partnerships.
One of the major advantages of a partnership is that the partnership does not pay tax on its income but “passes through” any profits or losses to the individual partners. At tax time, the partnership must file a tax return (Form 1065) that reports its income and loss to the IRS. In addition, each partner reports his or her share of income and loss on Schedule K-1 of Form 1065.
The corporate structure is more complex and cost more to operate than other business structures. A corporation is an independent legal entity, completely separate from its owners, and is required to comply with special regulations and tax requirements.
The biggest benefit for a business owner is that the corporation’s debt is not considered that of its owners, so you are not putting your personal assets at risk.
However, owners of the corporation pay a double tax on the business’s earnings. One strategy to help offset the double taxation issue is to pay some money out as salary to you and any other corporate shareholders who work for the company. A corporation is not required to pay tax on earnings paid as reasonable compensation, and it can deduct the payments as a business expense.
With an S corporation, income and losses are passed through to shareholders and included on their individual tax returns. As a result, there’s just one level of federal tax to pay. S corporations can also have up to 100 shareholders. This makes it possible to have more investors and thus attract more capital to your CDA S-Corp.
S corporations are subject to many of the same rules corporations must follow. They will need file articles of incorporation, hold directors and shareholders meetings, keep corporate minutes, and allow shareholders to vote on major corporate decisions. The CDA legal and accounting costs of setting up an S corporation are also similar to those for a regular corporation.
Limited Liability Company
An LLC is a hybrid entity, bringing together some of the best features of partnerships and corporations. LLCs provide Local business owners with the liability protection that corporations enjoy without the double taxation. Earnings and losses pass through to the owners and are included on their personal tax returns.
The best way to learn more about each business structure and decide which you should be is to talk with your Local Coeur d’ Alene Accountant or a Local CDA Tax Expert.