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An affluent suburb of Los Angeles, Cerritos was historically known for its vast dairy farms. It is now recognized as a vital part of the Gateway Cities of southeast Los Angeles County. Incorporated in 1956, Cerritos has a population of more than 49,000.
Serving Business Owners in Cerritos
If you are looking to start or expand a business in the City of Cerritos, rest assured that the city has many incentives for businesses to join the community. Cerritos is strategically located in the center of the Los Angeles/Orange County metropolitan area and is directly served by the three major freeways. Cerritos offers an abundance of information to help new and existing business owners in every way possible. “The City of Cerritos takes pride in providing its businesses with the best services, options, and incentives to make doing business in Cerritos inexpensive and hassle free.”
Cerritos supports its Businesses
One of the many goals the City of Cerritos has to maintain economic growth is to establish a business-friendly environment by ensuring it is simple and inexpensive for new and existing business owners to operate within the City. Cerritos received an award for the Most Business-Friendly City in 2010, an award given to cities with a population under 50,000. This award, bestowed by the Los Angeles County Economic Development Corporation demonstrates its commitment to successful businesses in its community.
Consider the Benefits of Pass-through Businesses
Pass-through businesses are the most common entity chosen for family-owned and closely-held businesses. Consequently, the number of pass-through business entities has increased substantially over the last 30 years. On the other hand, the number of traditional corporations has decreased. Now, pass-through businesses make up nearly 94% of all businesses, and they earn more than 64% of total business net income in the United States.
Also, pass-through businesses employ more than half of the workforce in the private sector. Considering these statistics, it is easy to see some of the benefits of pass-through businesses.
Options for pass-through business entities
The basic types of pass-through businesses include sole proprietorships, partnerships, Limited Liability Companies, and S Corporations. A sole proprietorship is an unincorporated business owned by a single individual. The business reports its income on schedule C of the 1040 tax form. Partnerships are unincorporated businesses with at least two owners, either individuals or other businesses. Limited Liability Companies (LLCs) have limited liability like a traditional C corporation. An S Corporation is a domestic corporation that can only be owned by U.S. citizens, with nor more than 100 shareholders.
What does the term “pass-through” actually mean?
The term “pass-through” means that the business profits are passed directly through the business to the owners and are reported on the owners’ individual income tax returns. In contrast, a traditional C Corporation pays corporate income taxes at the entity level. The owners or shareholders, also pay taxes on the same income when they receive a dividend or sell their stock and realize a capital gain. Another difference between pass-through businesses and traditional corporations is that owners pay the full tax on their business income each year, as the business earns it. Whereas, the owners of a traditional corporation are allowed to defer taxation under certain situations.
How does liability for pass-through businesses work?
Most LLCs are taxed as partnerships, but an LLC can elect to be taxed as a C Corporation. Traditional partnerships are similar to LLCs, except that they must have at least one partner with unlimited liability for the partnership’s actions and unpaid liabilities. With general partnerships, on the other hand, all members have unlimited liability. As such, LLCs have replaced most partnerships as the chosen business entity when creating a pass through entity.
Understanding how S Corporations Work
An S Corporation is most often treated like an LLC, for income tax purposes. However, the payroll taxes of an S Corporation are often much less. After payment of a reasonable salary to shareholders, considered as employee of the S Corporation, any additional distributions will not be subject to payroll taxes. On the other hand, the ordinary income of a working LLC member or partner is subject to payroll taxes.
If you have questions regarding estate planning, trust contests, or any other trust administration issues, please contact the Schomer Law Group either online or by calling us in Los Angeles at (310) 337-7696, and in Orange County at (562) 346-3209.
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