Cliff Beacham CPA | email cliffbeacham@cpa.com | California |  Tel: (949) 813-1349 
Cliff Beacham Tax and Business Consulting Certified Public Accountants
Call Cliff at (949) 813-1349
Limited Liability
Since we are considering taxes here is a list of the various forms under which you could report a business: Note on LLC: A   Limited   Liability   Company   (LLC)   is   a   business   structure   allowed   by   state    statute.   Each   state   may   use   different regulations. Owners    of    an    LLC    are    called    members.    Most    states    do    not    restrict    ownership,    and    so    members    may    include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most    states    also    permit    “single-member”    LLCs    (SMLLC),    those    having    only    one    owner.    Some    states,    such    as California, don’t allow for licensed professionals to form professional limited liability companies (PLC) An   LLC   allows   the   benefits   of   liability   protection   similar   to   a   corporation   and   it   offers   the   option   of   “pass-through” taxation, like a partnership (Form 1165) When   an   LLC   has   only   one   owner   it   can   be   considered   to   be   a   “disregarded   entity”   with   profits   and   losses   flowing directly into the personal tax return (1040) of the owner. The LLC can also choose (Form 8832) to be treated as a corporation for income tax purposes (Form 1120) Note: An LLC is a separate entity for purposes of employment tax and certain excise taxes This   level   of   flexibility   can   be   very   appealing   to   many   business   owners.   There   is   no   need   to   hold   annual   meetings or   to   submit   minutes   with   this   type   of   entity.   However,   it   does   need   to   have   bylaws   or   an   operating   agreement   to avoid losing liability protection Summary A   domestic   LLC   with   at   least   two   members   is   classified   as   a   partnership   for   federal   income   tax   purposes   unless   it files Form 8832 and affirmatively elects to be treated as a corporation An   LLC   with   only   one   member   is   treated   as   an   entity   disregarded   as   separate   from   its   owner   for   income   tax purposes  unless it files Form 8832 and affirmatively elects to be treated as a corporation Note on LLP: The LLP is not a separate entity as far as taxes are concerned. This means that the LLP doesn’t pay separate income taxes, and profits/losses flow directly into partner’s tax returns. An LLP has to file an annual return (Form 1065) and K-1’s to all partners Advantage - it’s easy to attract investors, who might become silent partners without dissolving the original general partnership. Disadvantage - you still have general partners who have liability for the business. Death of any partner dissolves the partnership Note: Franchise Tax Corporations pay franchise tax if they meet any of the following:     •  Incorporated or organized in California     •  Qualified or registered to do business in California     •  Doing business in California, whether or not incorporated, organized, qualified, or registered The franchise tax =  California net income multiplied by the appropriate tax rate with $800 minimum  Newly Incorporated Corporations To compute the tax for your corporation’s first tax year, multiply your California net income by the appropriate tax rate. Your first tax year is not subject to the minimum franchise tax After the first year, your tax is the larger of your California net income multiplied by the appropriate tax rate or the minimum franchise tax
Cliff Beacham CPA | email cliffbeacham@cpa.com | California | Tel: (949) 813-1349
Cliff Beacham Tax and Business Consulting Certified Public Accountants
Limited Liability
Since we are considering taxes here is a list of the various forms under which you could report a business: Note on LLC: A   Limited   Liability   Company   (LLC)   is   a   business   structure   allowed   by state  statute. Each state may use different regulations. Owners    of    an    LLC    are    called    members.    Most    states    do    not    restrict ownership,    and    so    members    may    include    individuals,    corporations, other LLCs and foreign entities. There is no maximum number of members. Most   states   also   permit   “single-member”   LLCs   (SMLLC),   those   having only    one    owner.    Some    states,    such    as    California,    don’t    allow    for licensed   professionals   to   form   professional   limited   liability   companies (PLC) An     LLC     allows     the     benefits     of     liability     protection     similar     to     a corporation   and   it   offers   the   option   of   “pass-through”   taxation,   like   a partnership (Form 1165) When    an    LLC    has    only    one    owner    it    can    be    considered    to    be    a “disregarded   entity”   with   profits   and   losses   flowing   directly   into   the personal tax return (1040) of the owner. The   LLC   can   also   choose   (Form   8832)   to   be   treated   as   a   corporation   for income tax purposes (Form 1120) Note:   An   LLC   is   a   separate   entity   for   purposes   of   employment   tax   and certain excise taxes This   level   of   flexibility   can   be   very   appealing   to   many   business   owners. There   is   no   need   to   hold   annual   meetings   or   to   submit   minutes   with this    type    of    entity.    However,    it    does    need    to    have    bylaws    or    an operating agreement to avoid losing liability protection Summary A   domestic   LLC   with   at   least   two   members   is   classified   as   a   partnership for     federal     income     tax     purposes     unless     it     files     Form     8832     and affirmatively elects to be treated as a corporation An   LLC   with   only   one   member   is   treated   as   an   entity   disregarded   as separate   from   its   owner   for   income   tax   purposes      unless   it   files   Form 8832 and affirmatively elects to be treated as a corporation Note on LLP: The LLP is not a separate entity as far as taxes are concerned. This means that the LLP doesn’t pay separate income taxes, and profits/losses flow directly into partner’s tax returns. An LLP has to file an annual return (Form 1065) and K-1’s to all partners Advantage - it’s easy to attract investors, who might become silent partners without dissolving the original general partnership. Disadvantage - you still have general partners who have liability for the business. Death of any partner dissolves the partnership Note: Franchise Tax Corporations pay franchise tax if they meet any of the following:     •  Incorporated or organized in California     •  Qualified or registered to do business in California     •  Doing business in California, whether or not incorporated, organized, qualified, or registered The franchise tax =  California net income multiplied by the appropriate tax rate with $800 minimum  Newly Incorporated Corporations To compute the tax for your corporation’s first tax year, multiply your California net income by the appropriate tax rate. Your first tax year is not subject to the minimum franchise tax After the first year, your tax is the larger of your California net income multiplied by the appropriate tax rate or the minimum franchise tax