Paperwork: Tax Election and Assumed Names

According to the IRS, if you organize as a corporation, by default you are a “C” corporation, which means that corporate earnings are taxed at the corporate level. When profits are distributed, they are taxed to individual shareholders. Thus, there can be double taxation. For that reason, many corporations elect “Subchapter S” status, which means that the corporation is disregarded for tax purposes. Corporate profits “pass through” to the shareholders for tax purposes.

When you organize as an LLC, the default is the opposite: The IRS considers you to be an “association” so that the LLC is disregarded for tax purposes. If you want to be treated like a “C” corporation, you must elect that status by filing Form 8832 with the IRS.

Difference Between C and S Corporation

Image credit: Kabbage.com

All of which brings us around to Bruno’s Place LLC. We anticipate plowing profits back into the business to expand and improve it. We don’t want to pay individual income taxes on those profits. We prefer the beginning 15% corporate rate instead. So we are filing Form 8832 with the IRS.

More taxes: You must obtain an Employer Identification Number from the IRS for your business. Even if you don’t otherwise need one – for example, if you won’t have employees, at least at first, so won’t be paying payroll taxes – the bank will make you get an EIN to open a bank account for your business. You can apply for an EIN through the IRS website.

Enough of taxes! If you have a business for which you want to use a different name than your “official” name, you must file an Assumed Name Certificate with the State of Texas. You can do this through the SOSDirect website, which I wrote about earlier. It costs $25 per assumed name.

We organized as Bruno’s Place LLC, but we are going to use “Bruno’s Place DIY Dog Wash” often in our advertising. Also, we might refer to ourselves as “Bruno’s Place” without the LLC. So we purchased both “Bruno’s Place DIY Dog Wash” and “Bruno’s Place” as assumed business names.

Isn’t paperwork fun?

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