Our office provides a wide variety of services to business clients by assisting in negotiating and preparing business agreements, consulting on the sale or purchase of businesses, business operations, as well as dissolutions of businesses.
Frequent Asked Questions:
Q1: Can a husband and wife run a business as a sole proprietor or do they need to be a partnership?
A: It is possible for either the husband or the wife to be the owner of the sole proprietor business. When only one spouse is the owner, the other spouse can work in the business as an employee. If a married couple who file a joint tax return elect to conduct their business activities as a qualified joint venture, (a trade or business in which the husband and wife materially participate in such venture), the spouses must divide the items of income, gain, loss, deduction, credit and expenses in accordance with their respective interests in such venture.
Q2: Are partners considered employees of a partnership or are they self-employed?
A: Partners of a partnership are considered to be self-employed. The partnership must furnish copies of Schedule K-1 to the partners by the partnership information return due date or extended due date. If you are a member of a partnership that carries on a trade or business, your distributive share of the income or loss from that trade or business is net earnings from self-employment. Limited partners are subject to self-employment tax only on guaranteed payments, such as salary and professional fees for services rendered.
Q3: I recently formed a limited liability company (LLC). The LLC has no employees. Do I need a separate Federal Tax ID number for the LLC?
No, you will not need a separate Federal Tax ID number for the LLC if you are the sole owner of the LLC and the LLC has no employees. If you are the sole owner of the LLC and the LLC has employees, you will need to get a separate Federal Tax ID number, if you choose to have the LLC report and pay employment taxes with respect to employees of the LLC. If you are not the sole owner of the LLC, you will need a separate Federal Tax ID number for the LLC.
Q4: For IRS purposes, how do I classify a limited liability company? Is it a sole proprietorship, partnership or a corporation?
A:A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Unlike a partnership, none of the members of an LLC are personally liable for its debts. An LLC may be classified for Federal income tax purposes as if it were a sole proprietorship (referred to as an entity disregarded as separate from its owner), a partnership, or a corporation. If the LLC has only one owner, it will automatically be treated as if it were a sole proprietorship (a disregarded entity), unless an election is made for it to be treated as a corporation. If the LLC has two or more owners, it will automatically be treated as a partnership unless an election is made for it to be treated as a corporation. If the LLC does not make a classification election, a default classification of partnership (multi-member LLC) or disregarded entity (single-member LLC) will apply.
Q5: Must a partnership or corporation file a tax form even though it had no income for the year?
A:A domestic partnership must file an income tax form unless it neither receives gross income nor pays or incurs any amount treated as a deduction or credit for federal tax purposes.
A domestic corporation must file an income tax form whether it has taxable income or not.
Q6: Can you give me plain English definitions for the following: (1) a closely held corporation, (2) a personal holding corporation, and (3) a personal service corporation?
A:Generally, a closely held corporation is a corporation that, in the last half of the tax year, has more than 50% of the value of its outstanding stock owned (directly or indirectly) by 5 or fewer individuals. Generally, closely held corporations are subject to additional limitations in the tax treatment of items such as passive activity losses, at-risk rules, and compensation paid to a corporate officers.
Basically, a corporation is a personal holding company if both of the following requirements are met:
- Personal Holding Company Income Test. At least 60% of the corporation’s adjusted ordinary gross income for the tax year is from dividends, interest, rent, and royalties.
- Stock Ownership Requirement. At any time during the last half of the tax year, more than 50% in value of the corporation’s outstanding stock is owned, directly or indirectly, by 5 or fewer individuals.
A personal service corporation is a corporation where the main work of the company is to perform services in the fields of health (including veterinary services), law, engineering, architecture, accounting, actuarial science, the performing arts, or consulting. Examples may be law firms and medical clinics. Also, substantially all of the stock is owned by employees, retired employees, or their estates.DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.