Re: sole prop or partnership

In article <[EMAIL PROTECTED]>, Troy
<[EMAIL PROTECTED]> wrote:

> Can a Sole Proprietorship exist with 2 people splitting the profits?  What
> is the difference in between a Sole Prop. and a Partnership?  Is a
> partnership more appropriate in this case?

A partnership is a seperate entity, sort of, but each person files
income tax seperately using a partnership tax form.  The business
is one business, but each partner files partnership income taxes.

If you do it as sole proprietors, you actually have two businesses,
one for your wife, and one for your in-law.  These are two seperate
distinct businesses with seperate names and seperate taxes.  These
two businesses can then make whatever agreement they want between
them about sharing jobs, expenses, revenues, etc.

> Also, how is the best way to maintain expenses?

It is best to fill out an expense report for each expense item,
complete with the receipt.  IRS only accepts source documents, unless
they were destroyed accidently.  Credit card statements and check
stubs are not sufficient.

> A separate checking account just for the business? 
> Do we open that in their names or in the name of the
> business?

Yes.  Otherwise, if someone gives you a check made out in the business
name, how would you cash it?  Or where would you deposit it.  You
cannot cash a business check unless you can identify yourself to the
bank as the business owner.  The easiest way to do that is to file
your business name, publish it in a legal newspaper as required,
then take your name certificate to the bank and open your checking
account.

Don't mix personal and business funds.  If you do, and the business
gets audited, the fact that you mix things automatically means that
you will get a personal audit, too.

> When reporting taxes, do you only report the profits?  What about
> the profits that you turn around and reinvest into the business (like buying
> more fabric in this case)?

If you are not incorporate, this is handled on tax schedules.  There
is one for a partnership.  A sole proprietor uses schedule C.
Basically, you list all revenue, and add it up.  Then you list all
qualified expenses, and add it up.  Subtract expenses from revenue,
and you have your profit.  Subtact off your business retirement account,
and the balance is either added or subtracted as part of your adjusted
gross income on your 1040.  You do this even if you don't itemize.  Note
that if the business shows a loss, which most businesses do for the
first few years, the loss is subtracted off of your normal W-2 wage
income.  This is one of the best tax strategies there is.  As a result,
keep track of everything that is remoted connected to business,
including your car usage, and claim the home office deduction to
its fullest potential.

-john-

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John A. Weeks III            952-432-2708         [EMAIL PROTECTED]
Newave Communications                       http://www.johnweeks.com
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