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    4 Replies Latest reply on Jun 9, 2008 8:21 PM by Lighthouse24

    need help starting a cleaning service

    sabrina Newbie
      my partner and I want to start a cleaning service. We have limited funds to start with, but want to start with the smartest business entity that possibly saves us tax dollars later. We've heard a lot about LLC and S corp and partnership vs. limited partnership. We're tempted to just file a DBA and get our business license so we can get up and running, but we do still want pass through tax advantages and dont know how difficult it would be to switch to another entity later. Any suggestions would be appreciated.
        • Re: need help starting a cleaning service
          Lighthouse24 Ranger

          By "just file a DBA," I assume you mean a sole proprietorship -- which technically, you can't do jointly as partners (except with a spouse). In my view, it would make more sense to review the responses provided in your other post regarding LLC vs. S Corp and make a decision now, rather than forming a legal partnership first and then changing later. Of course, a simple and cheap "get started fast" option would be for one of you to start a company as a sole proprietor and hire or contact work to the other until you build the business and are ready to go with an LLC or corporation. Hope that helps. Best wishes.
          1 of 1 people found this helpful
            • Re: need help starting a cleaning service
              sabrina Newbie
              Okay, We've decided to form an LLC. But what does it mean to elect to be taxed as a corporation or a partnership? What's the difference(s) that we should expect with either of those elections? if we elect to be taxed as subchapter S corp. over partnership, are we subject to same rules of a corporation throughout the year?
              Thanks in advance for any and all helpful comments.
                • Re: need help starting a cleaning service
                  Lighthouse24 Ranger

                  The IRS will automatically treat your two-member LLC as a partnership unless an election is made for it to be treated as a corporation (you do that by filing Form 8832). Aside from any state implications that might exist (your profile doesn't say where you're located), this election is purely for federal income tax purposes.

                  So should you make that election (and why should you care)? Well, understand that I'm not an accountant (hopefully, a CPA will post something to either back up or shoot down what I'm about to say), but I'd say, yes -- you should make the election and here's why you care . . .

                  If you're taxed as a partnership, all company profits are distributed to you and your partner -- so you each pay personal income tax on those profits at whatever rate applies to your level of income. For example, if your share of the profit was $40K, it would put you in a 25% tax bracket. If you were taxed as a corporation, however, you could probably manage your finances so that you'd never pay more than 15 percent in taxes ($40K profit would be taxed at 15 percent). So in that case, you'd pay $4,000 less in taxes as a corporation by comparison. Of course, the tradeoff is that you'd have to prepare and file a somewhat more complex corporate tax return (Form 1120). Does all that make sense?

                  Again, please run my logic by an accountant (especially if one doesn't post something here).
                  1 of 1 people found this helpful
              • Re: need help starting a cleaning service
                sabrina Newbie
                Okay, We've decided to form an LLC. But what does it mean to elect to be taxed as a corporation or a partnership? What's the difference(s) that we should expect with either of those elections? if we elect to be taxed as s-corp over partnership, are we subject to same rules of a corporation throughout the year?
                Thanks in advance for any and all helpful comments.