Multiple Non-Incorporated Businesses

If you, alone, try to sell your services or a product for profit this venture is usually considered a business (in certain circumstances the hobby-loss rules may apply).  The income and expenses of this business operation are reported to the IRS on Schedule C of your Form 1040, with you being the sole proprietor (only owner) of this business.  This is true even if you are a LLC (single member).





Many individuals attempt to sell unrelated services or products.  When the activities are not related the reporting of those activities on your tax return must be kept separate.  This means you will prepare a separate Schedule C for each business activity.  If you combine unrelated or separate business activities onto one Schedule C you may be facing negligence penalties (Rev. Rule 81-90).





If two or more people work together in the non-incorporated activity with the intent of sharing the profits, then the activity is considered a partnership and not a sole proprietorship.  In this case, the activity would report it's income and expenses on a Partnership Return, Form 1065.  The exception to this is if the partnership is between a husband and wife.  When this is the case, if both the husband and wife materially participate in the business and intend on filing a joint tax return, they may each elect not to be treated as a partnership and file their respective income and expenses regarding the business on their own Schedule C.  This exception does not apply if the husband and wife business is organized as a LLC.  If the husband and wife business has organized as an LLC they must file a partnership return. 

Tax law can change daily, please talk to your tax adviser before making decisions that will affect your taxes.

Advantages of C-Corporations

Note:  All references to corporations in this blog post are referring to C-Corporations.

Corporations are formed under state law so you will need to refer to your state for specific, but in general the following are some of the advantages of establishing a C-Corporation:

• A corporation is a separate legal entity, which generally means that the shareholders are not liable for the corporation's debts.


• A shareholder can generally only lose the amount of money they invested in the corporation's stock.


• Hobby loss rules do not apply to corporations


• The corporation can loan you money


• You can loan money to the corporation and receive principal and interest payments from the corporation.


• C-Corporations can generally deduct a percentage of dividends received during the year.


• Small corporations are exempt from alternative minimum tax (AMT)


• Dividends to shareholders are reported on Form 1099 and taxable up to the amount of the corporation's "earnings and profits" after that the dividends are nontaxable up to the shareholder's basis.


• Shareholders who sell their corporation stock at a loss are potentially eligible to deduct up $100,000 of that loss (this applies to small business corporations only)


• Shareholders who sell their corporate stock at a gain can potentially either postpone the gain if they use the proceeds to purchase another small business stock or exclude up to 75% of the gain if certain restrictions have been met.

Tax law can change daily, please talk to your tax adviser before making decisions that will affect your taxes.