STEP 1 - Determine entity type (LLC, S Corporation, Corporation, Non-Profit Corporation)

DISCLAIMERS: The information below should not be construed to be formal legal advice nor the formation of a lawyer/client relationship. Further, any U.S. tax advice contained on this questionnaire was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

1. Will your company be operated exclusively for tax exempt purposes such as for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals?

    

   YES -You can register your business as a tax-exempt or religious corporation. Please note that you must apply and be approved for actual tax-exempt status with the Federal and state governments and there are other requirements which must be met for such approval. Please call 301-805-5892 to speak with an attorney for more information on nonprofit corporations.

   NO - PROCEED TO NEXT QUESTION.

    

2. Do you plan on taking your company public (selling stock in your company to the general public)?

   YES -You will need to register your company as a corporation.
   
   NO -- PROCEED TO NEXT QUESTION.

    

3. Is having the simplest company type with no Board of Directors, company minutes, or annual shareholder meetings, a higher priority to you than possibly saving taxes?

    

   YES -Registering your entity as an LLC will probably work best for you since LLCs are not required to keep as many corporate formalities as a corporation or S corporation such as having a Board of Directors, maintaining company minutes, or conducting annual shareholder meetings.

    

   However, all profits from the LLC will be taxed as income to the individual member(s) at their individual income tax rate. In addition, you will have to pay Federal self-employment taxes if you earn more than $400 annually (the rate for self-employment taxes is approximately 15% of your income).  If you register your entity as an S corporation and the company has profits greater than what you would receive in a reasonable salary from the entity for the work you perform, that additional profit would be distributed to the shareholders as a dividend, and would not be subject to self-employment taxes (a savings of over 15%). For further information, please call 301-805-5892 to speak directly with an attorney.

   NO - PROCEED TO NEXT QUESTION.

4. Do you anticipate the company making a profit greater than what the individual owners would receive in a reasonable salary for the work they perform for the company?

   YES - Registering your entity as an S corporation will probably work best for you because you will be able to take advantage of a significant tax savings by paying a reasonable salary to employee owners and distributing additional profits as dividends, which are not subject to self-employment taxes (a savings of over 15%).

    

   NO - Registering your entity as an LLC will probably work best for you since you will not have profits greater than what employee owners would receive as reasonable salaries.  The owners will have to pay self-employment taxes on the income (the rate for self-employment taxes is approximately 15% of your income); however, LLCs are not required to keep as many corporate formalities as a corporation or S corporation such as having a Board of Directors, maintaining company minutes, or conducting annual shareholder meetings.

    

   Click here to see more information on these and other entity types

 

CLICK HERE TO PROCEED TO STEP 2