Accounting differences between business formations

The actual bookkeeping requirements are very similar, one small difference may be in the setup and handling of transactions in owners equity but there are other major differences in the tax treatment. (federal and state) If you are contemplating switching from a sole proprietorship to an LLC /LLP talk to a local tax professional, expecially if you are thinking of getting a partner involved (LLP)

On Fri, 02 Dec 2005 06:42:32 -0800, in alt.accounting "Adam W. Montville" wrote in :

There should be no accounting difference between an LLC and a sole proprietorship. There should be no accounting difference between an LLP and a partnership. The business differences are legal. The LL* limits liability of the owners, nothing more.

On Fri, 02 Dec 2005 16:04:53 +0000, in alt.accounting "Steve" wrote in :

What tax treatment differences are you aware of between a sole proprietorship and an LLC? I am not aware of any.

maybe I was thinking on the state level, there are different forms and some states and localities charge a big franchise tax for an LLC, also Quickbooks has different setup procedures for an LLC from a sole proprietorship but I don't know how relevant that is to the bookkeeping.

I appreciate all the comments. I'm really not following this entirely, though. It was my understanding that an LLC (I know it differs from state to state) would require it's own bank account an employer identification number (if employees were to be hired), and so on.

I suppose this would be true for a sole proprietorship as well. The thing is that right now I'm paying for everything out of pocket as I need to, but tracking the expenses. I have no separate bookkeeping for my personal finances and those related to the business. Should I be setting up a business account?

Yes, you should be doing that whether you keep the business a sole proprietorship or go with LLC. The IRS and state agencies like to see separate books for a business.

"Adam W. Montville" wrote

A sole-proprietor ~should~ have a bank account for the business, separate from any personal account. So should a single-member LLC (that gets taxed as a sole-prop), although it may not be "required".

In QB (as well as other software) you can use "Class" to segregate business revenues and expenses from personal revenues and expenses. It then becomes easier to run reports for the P&L. Just filter by Class, select the "Business" (or whatever you call it) class, and away you go. You can also set selected balance sheet accounts for the "Business" class to track your depreciable assets, record liabilities, etc.

That or you will need to set up a separate company under QB to break things down easier (or harder if you try).

Many thanks to all of you! I'm sure I'll be up here often seeking (and hopefully giving) advice...

Adam