Tax Facts

Business Entity Concept in Bookkeeping and Taxes

Many clients ask about setting up a small business and which entity they should select: LLC, Corporation, S Corporation, Partnership, etc. The answer is "it depends" and there are many factors to consider. To be sure, a knowledgeable advisor can help you choose the right one. We recommend hiring and Enrolled Agent, a CPA or a business attorney to do so.

There is a concept that does apply to any business entity you may choose for your small business and it is an accounting/bookkeeping concept called the Business Entity Concept. This concept is based upon an assumption that every business - no matter how big or small - and regardless of the legal entity of choice, is to be accounted for separately from the owner.

Personal and business-related transactions are to be kept apart from each other. The personal transactions of owners and others are separated from the measurement and reporting of economic activity of the business. One of the first recommendations almost all Enrolled Agents and Certified Public Accountants will tell a client who is forming a new business is to obtain and EIN for the business and then establish a business checking account and to use it exclusively for their business transactions.

It not only allows for easier bookkeeping, financial statements and tax preparation but it is something the IRS will expect should your books or taxes be audited.

Hiring a Family Member?
Home Office Measurement Methods

Related Posts

Click for the BBB Business Review of this Taxes - Enrolled Agent in Melbourne FL

1000 characters left