Differences in Taxation of LLCs and Sole Proprietorships

If you are starting a business, one of the most important considerations is how your choice of entity will be treated for tax purposes. Please see below for some important information on the differences between the two most common types of businesses our Mesa accountants work with:

Sole Proprietorships

Sole proprietorships are the simplest of business types when it comes to initial set-up and ongoing reporting. They are also simple from a tax standpoint, and do not require separate income tax returns. Instead, profits and losses are reported on Schedule C of the business owner's personal income tax return. Self-employment taxes are reported on Schedule SE.

LLCs

When a business owner decides to create a Limited Liability Company (LLC), if it is a "single-member" LLC (just one owner of the business), it will be treated as a "disregarded entity". Essentially, this means it will be taxed like a sole proprietorship unless the business owner elects to be taxed as a corporation by timely filing a form with the IRS. Arizona LLCs with more than one member (owner) are automatically taxed as partnerships by the IRS unless the business timely files the required form with the IRS to elect corporate income tax treatment.

When LLCs either choose to accept the default partnership tax treatment, or fail to file the required form in a timely manner, the business must submit an informational return to the IRS each year. Instead of paying taxes with the return though, the profits and losses are passed through to each owner who then must report their income on their own personal tax returns.

In contrast, if an LLC elects C-corporation income tax treatment, the entity itself will file and pay income taxes on Form 1120, with no "pass-through" of profits or losses. 

Taxation for your business is an important consideration; the right choice for your business will depend on a number of factors. Business owners should consult a tax professional to determine how different entity structures might impact taxation. To learn more, contact our CPA firm today.

Medical Accounting with CPA Assisted Ease

Medical accounting and recording keeping is a world unto it's own.   A CPA with that expertise is a rare find!

Medical accounting demands a precision in record keeping that is as highly valued or needed in few other professions.   Medical billing is a complex balance, and you need someone who will give you the ability to have as few errors as possible in a climate that errors are as common as rain in the tropics.

The goal of the medical accounting to not only deal with the taxes and financial strategies, but also to ensure that the provider is properly reimbursed for their services.   Not being aware of the billing can create substantial unpaid invoices.  Errors, both human and electronic occur.   But a small business accountant with a keen eye for detail and a down-to-earth approach, can help you master the accounting and billing software and assist you in creating an ease-driven, rather than a stress-driven environment.  

In the unique world of medical accounting, there is a balanced approach to creating a smooth flow.   Creating tax strategies and payroll that makes the office run smoothly, as well as develop a routine in the  the processing of medical billing.    Medical billing involves two incredibly delicate elements --health and money. A CPA, who can bring harmony to managing all the pieces of the picture and creating an approach, is integral in helping  the medical professional and his or her team.  Making

critical decisions and structuring transactions that consider not only the tax aspects of those transactions, but also the overall economic and operational effects is what a Quality CPA can do.

In creating the office that handles medical billing and accounting, you create a backbone for the organization. With solid principles and teamwork, the business allows the medical professional to do what they do best, heal and treat people and bring health to their community.

Sean Core CPA is an Arizona CPA who can be  the healer's healer.