Corporation ?
Other than liability, what is the difference between these two scenarios?
1. Having a corporation receive all of your income from your income-producing assets, then paying all of your expenses("Business" car, etc), then taking the remainder and paying and taxing your income.
2. Put it directly into a business checking account and just deducting everything at the end of the year?
I don't exactly follow how these are so different....
In #1 you are going through the work of incorporating and filing for a seperate entity. In #2 you just receive a business license or whatever they're called without paying for incorporation. I'm guessing the only difference is liability. Although, if you purchased real estate through a LLC wouldn't the LLC have it's own credit, etc?
Ruman,
Couple of things. For one, I would advise against simply depositing and writing checks out of an account, and using that as your accounting records. That will make for a big headache at the end of the year. I would purchase some simple accounting software, and keep track of your revenues and expenses that way. The accounting software can be purchased at any retail center with an electronics department.
Two, the main differences about what you are asking is how you report your income on your tax returns. If you incorporate, which makes sense for legal purposes, then that legally formed seperate entity will file it's own tax return. If that entity is an LLC or an S-corp, the entity will file form 1065 or 1140-S respectively, and issue you a K-1. You will transfer the income reported on your K-1 to your personal tax return.
If you don't incorporate, and simply operate under your personal tax ID (social security number), and use a "DBA" checking account, then your income will simply be reported on your personal tax return. Keep in mind, though, that even though you aren't incorporated, you can still use a vehicle for business purposes, and either take the standard mileage rate, or depreciate it. Ask you tax professional which would be best for you.
By either scenerio, your income will be taxed the same. Either way, I would strongly recommend keeping accounting records, and not simply relying on your bank records to compile your taxable income. Not only will you have a better idea on how profitable you are, but you will also save a lot of time when you prepare you taxes.
In both cases, you certainly can write a check to yourself, either "just because" or to pay your taxes. In the case of incorporation, it would be simply be a distribution. That in itself is the single biggest benefit for having an LLC or an S-Corp, vs a C-Corp. In the first two, since the individual members/shareholders pay the taxes, they are not also taxed on distributions. In a C-Corp, the shareholder would have to pay taxes on the dividends, and the C-Corp would pay taxes on the income (double taxation). In the case of not incorporating, you can still just write a check to pay your taxes, same as you could out of your personal (non-business) checking account.
Also, typically, I believe, you would have to personally guarantee any liabilities an LLC would have.
Kind of rambled, hope it all makes sense. If not feel free to aks for clarification.
Correction:
An S-Corp files an 1120-S, not 1140-S. The hand is quicker than the eye : )