Business Operations

What is the best form of ownership for my small business?
Here are some key points about the four major forms of organization:

Sole proprietorship. A sole owner controls the business and takes all the profits, which are included in personal income. Any losses can be deducted from the owner’s personal income. No legal formalities are required, and it’s easy to start up or close down the business. However, the owner is responsible for all business debts, so personal assets are at risk.

Partnership. With two or more owners, more people can invest in the business and share in the profits or use losses to offset other income. Partners are taxed like sole proprietors; except for passive limited partners, each partner is liable for the partnership’s debts.

Corporation. Most larger businesses incorporate. Then the corporation, not the owners, bears the liability for actions taken by the business. The state must approve the incorporation, and shares of stock must be issued. Because a corporation can sell more stock to raise capital, it has greater growth potential than other types of business organizations.

Limited liability company (LLC). Like corporations, LLCs must be set up under state law. LLC owners, referred to as members, are generally shielded from the LLC’s debts and liabilities unless they expressly guarantee or assume them (again, this is similar to the corporate situation).

Are home office expenses deductible?
To qualify for home office deductions, you must use an area of your home regularly and exclusively as the principal place of your business or a place where you meet customers or clients in the normal course of business. Ditto for your spouse. So you may be able to treat the whole den as a deductible home office. Regardless of what you spouse does, you can secure a deduction for the part of the den used as an office for your business as long as it is a separate space within the room.

As an individual, what do I need to know about the tax breaks of charitable donations?
If you’re an itemizer, you can claim a charitable deduction based on the fair market value (FMV) of the property. But remember that no deduction is allowed unless the items are in good condition or better.

What is considered to be “good condition” for this purpose? The tax law doesn’t specify. So donors have a little leeway if you follow the charity’s guidelines.

Make sure that all contributions are documented with receipts. Also, spell out any special circumstances (e.g., donations of items never used). With more generous donations, obtain a detailed receipt from the charity. You will need this documentation as proof when you file your tax return.

Use an online guide to value gifts of property. Have high-value items independently appraised. Under a special rule, a donor can claim a deduction for a single item that is appraised at more than $500, even if it’s not in good condition.