I forgot about another reason to form an LLC or corporation: Tax Audits. Here are some stats from 2004:
IRS Audit Rates
Sole Proprietors with income < $25k: 3.15%
Sole Proprietors with income $25-100k: 1.47%
S-Corporations (all): 0.19%
C-Corporations, assets under $250k – 0.18%
According to this small data set, sole props are 7 to 17 times more likely to be audited than corporations, and about 3 times more likely than indviduals without business income. Couldn’t find info for LLCs.
I’m no tax expert but from what I know the IRS doesn’t care about LLCs. They consider LLCs to either be a sole proprietor if it’s a single member LLC or a partnership if it’s a multi-member LLC. A single member LLC just puts their LLC income on the IRS Schedule C form and a multi-member LLC has to file IRS partnership tax form 1065.
I wonder with the higher rate for sole proprietors
Hmmm….
Maybe the audit rates are higher for certain businesses under a particular classification because these types of organizations simply do not have the $$$$ resources to defend themselves or higher legions of accountants and lawyers to read the code and figure out what it could do to lower to the payout.
Speaking of taxes, I hope this documentary will spur the American people to some action:
http://www.freedomtofascism.com/
I have only seen the trailer, but I’ll be willing to buy it if it does not make it to a local movie theatre this summer. Definitely raises some good questions.
I paid $4200 for 2005 on my “national average income”. At least I don’t live (yet again) in a state with an income tax. Never mind the $3100 or so looted plus the employer’s contribution for SS and medicaid; money I’ll never see.
I originally thought you wrote negative 0.19% for S corps. Since you used the “:” for the first two, then switched to the “-” for the 2nd two, it just got slightly confusing.
Thanks for the info though!