Advantages of the IRS’s Income Tax Planning Manual

Small businesses are legally corporations, partnerships, sole proprietorships, or simply individual owners that have fewer registered employees and/or lower sales than a normal-sized business or organization. This is not meant to be a negative thing, though. On the contrary, these enterprises often provide the best benefits to small business owners. Small business finance programs and laws are designed to benefit these enterprises in several different ways.

A quick definition of the term “small business” might begin with the word” corporation.” As defined by the US Small Business Administration, a corporation is a legal entity that exists for the operation of the business for the benefit of the shareholders. Common shareholders in small businesses comprise the original members of the company, its stockholders, and owners of subsidiary or affiliate companies. It does not include partnerships or unincorporated organizations. The definition also excludes partnerships that are controlled by the company.

A second definition might begin with the word “person.” A person can be either an individual or a corporation. A person is one who owns property and carries out the duties of an employee. A company must register its business with the secretary of state as a legal business entity. To establish itself as a legitimate corporation, a company must also meet the state’s specific size standards.

Another commonly used term in the context of small business law is “independently owned.” An “independently owned” business is one in which at least one owner contributes to the management and operation of the business. There are some definitions of “independently owned” that include some exceptions. For instance, a sole proprietorship may qualify as “independently owned” under some states’ statutes. A partnership may qualify as “independently owned” if both owners are contributing to the partnership’s management and operation. An LLC may be considered “independently owned” under some state statutes if one of the partners is a United States citizen and if the business meets certain requirements (for example, if it has been established for more than six months).

One of the advantages of registering a business is that you can avoid paying business tax on many of your expenses. Because most small businesses incorporate, they are required to pay corporate taxes. When you incorporate, your business becomes an individual entity for tax purposes. Consequently, you will not be responsible for filing state and federal income taxes. Some states allow small businesses to be non-domiciled, which means that they do not have to report their corporate income on personal income tax returns.

A third defining feature is “generally held” business. A definition of “generally held” usually refers to a definition that indicates that the business is part of a group of businesses held by a partner or proprietor that are publicly traded on a regular basis. Examples include partnerships and limited liability companies. Limited liability companies offer more protection against creditors and lawsuits than partnerships, but both definitions carry the same advantage for small businesses that many large corporations enjoy: the ability to limit personal liability.

The fourth main advantage to the definitions of small businesses in the small business survey is that there are fewer size standards for the same business. There are no minimum sales volume, minimum annual revenue, or other minimum number of employees that businesses may require to meet in order to register. Registration does not have to be based on an accurate population estimation for the United States, although it typically is. In addition, there are no minimum amounts of assets that must be owned or operated. There are also no minimum investment thresholds that must be met, so small businesses can get going even if they don’t have significant financial assets.

The small business finance definition in the IRS’s Income Tax Planning Manual provides a detailed explanation of the various types of transactions and what is required from owners of these types of businesses. It provides data on the percentages of profit that will be kept by the corporation instead of shared with investors, it explains how dividends will be taxed, and it provides data on the alternative minimum tax that would be imposed if the corporation had any significant investments or assets outside the United States. Because these sections of the IRS’s publication are designed to provide specific information on the tax treatment of various transactions, they are extremely useful to any potential or current small business owners. The CPAs at law firms are well-versed in the language of the Income Tax Planning Manual and using this as a base you will have substantially greater success when completing your own individual income tax returns.

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