What Type of Business Entity Should I Choose?

You want to work for yourself and you have a great idea for a business. The next step is to determine what type of entity to be; proprietorship, limited liability company (LLC), S corporation, partnership, or C corporation. The order of the 5 entities goes from simple to complex with the C corporation the most complex and the proprietorship the easiest to set up and operate. I prefer the proprietorship for most small one owner companies but there are advantages and disadvantages to each of the entities and expert advice should be sought to find the best fit for your new business.

Simplified Employee Pensions (SEPs)

In my opinion, SEPs are the best way to put aside funds for retirement for the self employed with no employees. You can contribute up to 20% of your net self employment income to a maximum of $51,000 in 2013 to your SEP by the extended due date of the tax return. This contribution is tax deductible and grows tax free. There is also no reporting requirement like there is for other more complex retirement plans like 401k plans. You don't even have to establish a plan until the extended return due date.  If you have employees, then you have to make the same percentage contributions for all eligible employees.

Mortgage Interest on Three Homes

Mortgage interest paid on your first and second home is deductible if generally the combined debt is less than $1,100,000. What if you have a third home? If it is not considered investment property, then the interest is nondeductible personal interest. If the third home is held for investment, then the interest is investment interest which is only deductible to the extent of investment income each year.

Social Security Benefit

For 2013, the most social security you can receive is $40,200. You have to start getting benefits at age 70 to get the maximum. The average social security benefit is $14,760. Benefits are based on the age you start receiving benefits and earned income for your best 35 years of work.