From what I'm aware the main disadvantage that's documented several times is corporations experience double-taxation. Since the business is a person in the eyes of the IRS, they get taxed and since your working for that entity you also get taxed. So profit-wise, there unseen long-term cost is the cost of the double-taxation. As a sole-prop or a partnership (with partnership agreement of course) you could mitigate that legal liability by spending that money (or hopefully a smaller portion) that will go into the taxation as a corporation and using it for legal protection (retainer and insurance).
This second part I'm not 100% sure of if someone else wants to correct me that's fine. But as far as legal liability your still fully responsible of something negative happens as a corporate manager of a corporation. Negligence can be pursued against all active owners and top-level managers in the case of a bad situation and money wise from what I know your still liable for the debt that starts up the business.
For the tax-write off it's true as long as it's used exclusively and as the principal location for the business (which it seems it will be). That means that garage can only be used for that and you absolutely can't use it for anything else. To find how much you could deduct you'd figure out the size of the garage and the size of the house (in sq. ft.) then in sq. ft. garage/house * 100. What you should end up with a percentage of the size of the garage versus the entire house. With that information whatever costs are incurred in the use of the garage (mortgage, electricity, interest, etc.) can be deducted from your monthly expenses and used as a business expense.
It sounds like a lot of initial work but it'll be worth it when you can start writing-off costs.
http://www.irs.gov/pub/irs-pdf/p587.pdf That has all the information on tax-write offs from the IRS itself. Page 4, end of page 6, page 7, 8 are what you will most likely find helpful.
I should have also added something else. That tax deduction is good up until the limit of what the IRS allows tax-deductible home offices to be. I'm not personally sure what it would be for you, but realize there would be a limit to all that could be tax-deducted. Realistically though, any deduction is a good deduction.
Hello StartUp Nation!
I am extremely happy that I discovered this site!
My friend and I are starting up a dive business in a high tourist and local traffic dive area.
Initial cash-flow will be light due to covering the costs of remodeling and buying rental equipment for students and divers. Advertisement will be mostly by word-of-mouth, but experience has shown that this brings the happiest customers.
Our consistent pricing schema will be welcomed by local customers who are tired of the "special price for a special friend" trend that has dominated the market.
Questions to Start-Up Nation
I am uncertain on how we should execute the legalities of our business.
I know that a Corporation can offer liability shielding, which would be critical if something negative happened, but the costs to maintain that seem too large for our operation.
LLC's seem the right way to go but I'm not certain if that really offers us any benefits other than legal agreements between each other.
If there are any business tax experts out there I would be interested in hearing the advantages/disadvantages to the above.
I heard that in some home businesses, the owners can write-off a lot of the costs of the onsite property. Simply translated, if we can show that we use 30% of the house to run the business (garage) then we can write-off 30% of the cost of the house.
How accurate is this interpretation of the tax law?
Thank you for your time and I look forward to hearing your advice.