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  • Writer's pictureJackie Sweeten

Entity Formation

Ahh, the question that burns in every entrepreneurs mind: to form (an entity) or not to form?

Knowing what you want to do and why is one of the most foundational questions you’ll ask yourself to know where you want to take your new business adventure. Yes, I said AD-venture, because life is too short not to make it an adventure from start to finish! What’s the point of forming an entity?

Let’s take a look at not forming first.

Just me: I just want to be a tiny sole-prop and skip the paperwork! This decision is like hanging a shingle on your doorpost that says, “I’m me, and I’m open for business.” No fuss, no filings, no formal announcements, nada! You love to mow yards, care for computers, walk pets, wash cars, do a little consulting…you get the picture. You’ve decided you don’t want to file a “corporate” tax return with the IRS, nor file any reports with the Texas SOS. There’s an option for that. Track your income and expenses and file them on the Sch-C of your personal 1040. One note, though: this type of structure provides you zilch protection if a customer gets angry or has a viable reason to file a complaint against you for services rendered. You and the business are one, and your personal assets could be at risk.

LLC: I want the basic level of protection one up from a sole-prop! Ah, now we’re thinking about potential growth. Structuring to an LLC or PLLC is the next level to consider. Yes, it does mean a formal registration with the Texas SOS and then with the IRS for an FEIN, but it is so worth it! We can help you with this formation process! We’ll help determine if your new LLC/PLLC is a single member (you with or without spouse), with business income/deductions remaining on your personal 1040 under a Schedule C filing, or if it’s another kind of entity entirely. This single-member LLC gives you a basic level of protection if someone files a claim against you. One note here: this election is fine until you make too much net income. We can help you figure out where that net income sweet spot is and move you to the next level with our tax strategy experts.

So, what is best for you?! Our wonderful team here at Sweeten CPA can’t wait to hear from you, and get you scheduled for an initial chat to find out how we can help make this year and the coming years as successful and stress-free for you as possible!


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