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Tax Entities
Sole Proprietorship Business Entity for Your Start-Up or Small Business?
Lean on the Experience of an Award-Winning Pittsburgh CPA Firm.
Most small businesses operate as sole proprietorships. This is the simplest form of organization and allows the single owner to have sole control and responsibility. Some advantages of the sole proprietorship are less paperwork, a minimum of restrictions, owner retention of all the profits, and ease in discontinuing the business. Disadvantages include unlimited personal liability for all debts and liabilities of the business, limited ability to raise capital, and termination of the business upon the owner's death.
You should note that a small business owner might very well select the sole proprietorship at the beginning. Later, if the owner succeeds and feels the need, he or she may decide to form a partnership or corporation.
Dennis Piper & Associates Provides Business Consulting for Start-Ups and Small Businesses
- Business Start-Up Consulting: Lean on our expertise as you choose your business entity, tax structure, and accounting, business and management software. We will help you with everything to get your business up and operational
- Small Businesses: Have you outgrown your existing accounting and tax service provider? We provide auditing services, as well as complex tax & business consulting.
New Tax Laws for Individuals and Sole Proprietorships:
A new tax credit comprised of 6.2% of a taxpayer’s earned income up to a total credit of $400 for individuals and $800 for joint filers [Code Sec. 36A]. The credit is retroactive to the beginning of 2009 and is set to expire at the end of 2010. It begins phasing out at a rate of 2% of modified adjusted gross income (MAGI) above $75,000 for individuals and $150,000 for joint filers.
AMT patch:
For 2009, the alternative minimum tax (AMT) exemption is increased to $46,700 for singles and $70,950 for joint filers [Code Sec. 55(d)].
Home buyer’s credit:
The act increases the amount of the Sec. 36 first-time home buyer’s credit from $7,500 to $8,000, and it eliminates the repayment requirement for houses purchased in 2009. The credit, added by the Housing Assistance Tax Act of 2008, P.L. 110-289, is refundable, but for homes purchased between April 9, 2008, and December 31, 2008, it must be recaptured ratably over 15 years, or earlier if the home is sold. The stimulus act waives the recapture requirement for homes purchased after January 1, 2009, and extends the sunset of the credit from June 30, 2009, to December 1, 2009. The amount of the credit remains at 10% of the purchase price of a principal residence of a taxpayer, who has not owned a U.S. principal residence in the previous three years. Recapture still applies if the taxpayer disposes of the home or no longer uses it as a principal residence within three years after purchase.
New car sales tax deduction:
Buyers of new cars and light trucks between February 17, 2009 and the end of 2009 may deduct the portion of state and local sales and excise taxes attributable to the first $49,500 of the vehicle’s purchase price [Code Sec. 164(b)(6)]. This is an above-the-line deduction, and it is allowed against AMT. The deduction will be phased out for single taxpayers with MAGI in excess of $125,000 for the tax year ($250,000 for joint filers). Taxpayers who elect under [Code Sec. 164(b)(5)] to take the state and local sales tax deduction in lieu of deducting state and local income tax cannot also take the new car sales tax deduction.
Hope scholarship credit expansion:
The American opportunity tax credit is a temporary (for tax years beginning in 2009 and 2010) increase and expansion of the Hope scholarship credit [Code Sec. 25A(i)]. The maximum credit per student increases from $1,800 to $2,500, and its availability is extended to the first four years of post secondary education. The act makes the formerly nonrefundable credit 40% refundable. The phase-out range is increased from the former $50,000–$60,000 for single filers to $80,000–$90,000. The joint filer phase out, formerly $100,000–$120,000, increases to $160,000–$180,000. Expenses for course materials, such as textbooks, are added to the definition of qualified tuition and related expenses eligible for the credit.
Sec. 529 plans may buy computers:
For 2009 and 2010, the costs of computers and related technology qualify as higher education expenses for purposes of the rules governing distributions from a [Code Sec. 529] qualified tuition plan, as long as the beneficiary of the plan is enrolled at an eligible educational institution. Internet access charges are also covered, as well as software, as long as it is not for sports, games, or hobbies (unless the software is predominantly educational in nature).
Qualified transportation fringe benefit increase:
The act increased the excludible amount of a qualified transportation fringe benefit from $120 to $230 per month (the same as the qualified parking amount) [Code Sec. 132(f)]. This higher limit is effective from March 2009 through 2010, with an annual inflation adjustment.
Child tax credit and other items:
The act extends for 2009 and 2010 the lower $3,000 income threshold for refundability of the Sec. 24 child credit, meaning more of it is refundable to low-income taxpayers. Other items directly benefiting less-affluent individual taxpayers or those in financial distress, include a temporary increase in the earned income tax credit for 2009 and 2010, a one-time $250 payment to persons on fixed incomes not eligible for the making work pay credit, and a temporary exclusion of $2,400 of unemployment benefits from taxable income for 2009.