Daniel HonanFounder, Profitable Painter CPA PLLC · I help painting contractors increase profits & cash flow while reducing taxes♦ Bookkeeping ♦ Tax

Painting Contractors: Business Vs Taxation Entities Corporation, LLC, Sole Proprietor

Name: Painting Contractors: Business Vs Taxation Entities Corporation, LLC, Sole Proprietor
Uploaded: 2023-05-23T12:05:47+00:00
Duration: 59 s
Channel: Daniel Honan
Description: The speaker explains that a business’s legal structure (sole proprietorship, LLC, or corporation) is separate from its tax classification. A sole…

23 May 2023 · 1 min

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The speaker explains that a business’s legal structure (sole proprietorship, LLC, or corporation) is separate from its tax classification. A sole proprietor is automatically a disregarded entity and reports profit on Schedule C of Form 1040. An LLC can start as a disregarded entity but may later elect corporate taxation, most commonly S‑corporation status. A corporation can remain a C‑corporation or elect S‑corporation taxation. The key point is that “S‑corp” is not a distinct legal entity; it is a tax election that can apply to an LLC or a corporation. Understanding this distinction helps painting contractors choose the appropriate structure and tax treatment as their business grows.

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There's two things at play here. You have your business entity and then you have your taxation type. So your business entity could be just you yourself as a sole proprietor. It could be a limited liability company that's formed under your state or an LLC, or it could be a corporation that's incorporated in your state. Those are three different business entities. Now, depending on the type of business entity you have, you have options as far as your taxation goes. A sole proprietor is going to be taxed as a disregarded entity. That means they're gonna be reporting their business profits on a Schedule C when they file their Form 1040. LLC has more options. LLC can be a disregarded entity, and most people when they're starting out, that's what they're going to do. That's, that's what we would recommend. But as that LLC grows, it might choose to be taxed as a corporation, specifically an S corporation. Same thing with a corporation business entity. That corporation might elect to have S corporation taxation, or it might elect to have regular or C corporation taxation. But the key takeaway is that your business entity is separate from your taxation type. So there really is no such thing as an S corp. There's LLCs, there's corporations, and then there's S corp taxation. So when I say elect S corp taxation, I like to use those words because, you know, that could be your LLC, it could be your corporation. It's just a flavor of taxation, and it's not an entity in its own right.