Forum Moderators: LifeinAsia
Business is starting to pick up, and I'm going to need to start considering filing as a small business.
The majority of my income comes from affiliate programs where I'm getting paid simply by receiving a commission for getting people to signup for various sites & services.
I've read through SBA's site, but still am unclear on which form I should need. The primary goal is to minimize taxes.
Is a sole proprietorship fine since it's just me? What about LLC's and S-corps... is there any real reason for me to worry about liability issues?
Are the costs much different for these? I've also read that many companies incorporate through delaware because of its minimal costs.
Any input would be greatly appreciated.
-Neil
If you are simply working for yourself using affiliates programs then probably your best bet would be a sole propriater - I have no idea how it works in the US but in many European countries small traders get significant (for them) tax relief, dependent upon their activity and income levels.
LLC and S-Corps are "pass through" entities. Tax liability passes through to the owners. The company itself doesn't pay any taxes. This is advantageous if you [a]plan on taking a loss, or [b]do not plan to leave any capital in the company at the end of the year, because you will be taxed on it whether you distribute it to yourself or not.
A C-Corp is a separate taxable entity. Some claim that this leads to double taxation (the company pays taxes on its earnings, then you pay taxes on what you've paid yourself). The advantage is, if you leave a large amount of capital in the company, you do not personally have to pay taxes on it.
As far as all of the legal stuff required to maintain your corporate status (meeting, minutes, etc.), LLC is the least complicated and C-Corp is the worst.
As far as incorporating in Delaware (Nevada is another popular state), it's true that these states do not charge any corporate income tax. What we found out is that, if we incorporated out of state, we'd have to register in California as a foreign corporation and pay taxes on any business we do here.
Technically, any corporation that does business in a state other than its "home" state is subject to this. This means, as a web firm with clients in several states, we would have to pay taxes to each of those states. Apparently sole proprietorships and partnerships are not subject to this.
You also must have a "presence" in the state you incorporate. Unless you have relatives in that state, you'll have to pay a company to do this. It basically amounts to a phone number and mailing address that these companies set up and maintain for you, by forwarding any mail and/or calls to you.
As far as costs, we were talking to an attorney, so we were looking at about $1500. I'm told you can do it online for a few hundred. Hope that helps.
