I don’t know which option is the best (Sole Proprietorships or LLC) for taxes, paper work, etc?

Question

I am planning to open a small business. At the beginning of the business I am not hiring. I don’t know which option is the best (Sole Proprietorships or Limited Liability Company -LLC) for taxes, paper work, etc? Can you please give some idea on this issue? Thanks

Answer 1

An LLC isn't recognized for tax purposes.  It defaults to sole proprietorship if you are the only member of the LLC.

Answer 2

Least paperwork: sole proprietor

A single member LLC is a 'disregarded entity' unless you elect to be taxed as an S corporation, so it would be the same tax-wise but you might have to pay a state franchise or income tax.

You could call a CPA if you can't decide.

You will probably need a lawyer to form an LLC unless you can prepare the papers to submit in order to get a charter.

Answer 3

Start as a sole proprietorship.  If you really start to take off, consult a tax professional about the best kind of organization for the future.

Answer 4

While an LLC is a disregarded entity for Federal tax purposes, most States treat them as Corporations and require you to file a Corp tax return.  You also have to pay any minimum franchise fee regardless of profit or loss.  That would hit you $800 in CA and around $500 in NY even if you showed a loss, which is common in the early years.

To keep things as simple as possible, stick with a Sole Proprietorship to start and as wartz recommends, consult with a local tax expert (and lawyer) if things start to take off.