Avoid Getting Caught in the Business Version of “The Dog Ate My Homework”

Our world is a complicated place. It takes a lot of energy, focus and time to stay on top of the game whether it is managing your household, traversing the college entrance maze, or learning how to use the latest electronic gadget hoisted upon us. The world of business is certainly no different.

Owning and operating your own business is fraught with complexities and decisions and planning and personalities that demand attention day and night. It is more necessary than ever to recognize that focusing on your area of expertise and hiring others to do the same is the only way to move closer to your goals.

Determining whether to structure a business as a sole-proprietorship, partnership, corporation or limited liability company requires asking a lot of questions of professionals who know how and where to find the right answers for you.

There are advantages and disadvantages to each entity form depending upon the type of business, the location of the business, the level of revenues, the state and federal requirements and tax implications, and liability issues, just to name a few.

For example, a sole-proprietorship is probably the simplest option for small businesses, but there is no personal liability protection. And if business is limited to just one state, the Limited Liability Company structure can add that enhancement without complicating things too much. But if the business operates in many states, the LLC is required to register in each one and comply with that state’s requirements, which could mean extra taxes and paperwork each year.

There is also an issue around payroll taxes for employees and excise taxes. As of January 1, 2009, both of these items must be handled by the LLC for purposes of the IRS. Not a big deal, but if you don’t know that and you are electing the option to file as a sole-proprietor rather than a corporation, you might find yourself out of compliance.

There are also the considerations of short-range and long-range goals for the business which might indicate the proper direction to avoid taxable consequences of changing from one entity to another down the road. Sometimes trying to sort this out entirely alone to save money or to stroke your ego is a mistake.

Why not treat this project like a group assignment and start enlisting the advice and expertise you need to make the best choices for the success of your business. It’s not considered “cheating” in the school of life (and business). It just makes good sense not to go it alone on this one.

Disclaimer: This article is for informational and entertainment purposes only, and should not be construed as legal advice on any subject matter.