ENTITY PROS & CONS

James K. Duerr, C.P.A., M.S.

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ENTITY	PROS	CONS
Individual	Cheapest Business losses are deductible against other income	Unlimited liability Cannot be transferred to another (only assets & customer list can be sold) Deductible business losses are limited to 2 years out 5 Hobby losses are not deductible All profits are subject to social security & Medicare tax Seen as “Mom & Pop” has less credibility
Partnership	Can be transferred to new owners by agreement Business losses are deductible against other income Profit & losses can be allocated as preferred to owners	Unlimited liability for general partner Business profits are subject to social security & Medicare tax unless limited partner
LLC (Limited Liability Co.)	Limited Liability Can be transferred to new owners by agreement Business losses are deductible against other income Hobby type activities do not send up a flag to the IRS If Partnership tax treatment is taken, profit & losses can be allocated as preferred to owners If desired, you can select to be treated as a corporation or S corp. for tax purposes	Costs more to set up & file taxes Case law thin so legal outcomes are not certain Potential clients may be concerned that an LLC doesn’t have to stand behind their product or service (i.e. not easily sued)
Corporation	Limited Liability Easy to transfer to another Business losses are deducted by the corporation Hobby type activities do not send up a flag to the IRS Substantial image to public Can raise funds through sale of stock tax free	Costs more to set up & file taxes Business losses are deductible by the corp. only Double taxation. Corp. taxed on profits and owners taxed again when dividends received Subject to Florida income tax (5.5% after first $5000) Active owner must be paid as an employee
S Corporation	Limited Liability Easy to transfer to another Business losses are deductible against other income Hobby type activities do not send up a flag to the IRS Only owners’ salary subject to social security & Medicare tax No Florida or federal tax paid by corporation. Profits taxed only once (in owners’ return) Substantial image to public Can raise funds through sale of stock tax free	Costs more to setup and file taxes Active owner must be paid as an employee Generally not a good entity to hold real estate for long term purposes