Your filing status is used in determining whether you must file a return, your standard deduction, and the correct tax. It may also be used in determining whether you can claim certain other deductions and credits. The filing status you can choose depends partly on your marital status on the last day of your tax year.

Forming and operating a corporation or Limited Liability Company, or LLC, is a wise choice for some small businesses. The main benefit of an LLC or a corporation is that these structures limit the owners’ personal liability for business debts and court judgments against the business.
What sets the corporation apart from all other types of businesses is that a corporation is an independent legal and tax entity, separate from the people who own, control and manage it. Because of this separate status, the owners of a corporation don’t use their personal tax returns to pay tax on corporate profits. The corporation itself pays these taxes. Owners pay personal income tax only on money they draw from the corporation in the form of salaries, bonuses, etc.
LLCs are similar to corporations because they also provide limited personal liability for business debts and claims. But when it comes to taxes, LLCs are more like partnerships: the owners of an LLC pay taxes on their shares of the business income on their personal tax returns. Corporations and LLCs make sense for business owners who either 1) run a risk of being sued by customers or clients or run the risk of piling up a lot of business debts, or 2) have a lot of personal assets they want to protect from business creditors.
NOTE: Washington state law requires certain professions to form a different type of corporation that is referred to as a personal service corporation. Limited Liability Companies have the same requirement. If this requirement is not fulfilled, you fail to obtain the legal protection.

A nonprofit corporation is formed to carry out a charitable, educational, religious, literary, or scientific purpose. A nonprofit can raise much-needed funds by receiving public and private grant money and donations from individuals and companies. Federal and state governments do not generally tax nonprofit corporations on money they make that is related to their nonprofit purposes, because of the benefits they contribute to society.

Some people dream of forming a business where the owners are true equals: an organization owned and operated democratically by its members. These grassroots business organizers often refer to their businesses as a “group,” “collective” or “co-op” — but these are usually informal rather than legal labels. For example, a consumer co-op could be formed to run a food store, a bookstore or any other retail business. Or a workers’ co-op could be created to manufacture and sell arts and crafts.

For many new businesses, the best initial ownership structure is either a sole proprietorship or, if more than one owner is involved, a partnership. A sole proprietorship is a one-person business that is not registered with the state as a limited liability company (LLC) or corporation. You don’t have to do anything special or file any papers to set up a sole proprietorship. You create it just by going into business for yourself. Legally, a sole proprietorship is inseparable from its owner, i.e., the business and the owner are one and the same. This means the owner of the business reports business income and losses on his/her personal tax return and is personally liable for any business-related obligations, such as debts or court judgments. Similarly, a partnership is simply a business — owned by two or more people — that has not filed papers to become a corporation or a limited liability company (LLC). You don’t have to do anything special or file any papers to set up a partnership. The arrangement begins as soon as you start a business with another person. As in a sole proprietorship, the partnership’s owners pay taxes on their shares of the business income on their personal tax returns, and are each personally liable for the entire amount of any business debts and claims. Sole proprietorships and partnerships make sense in businesses where personal liability isn’t a big worry, for example: a small service business in which you are unlikely to be sued and for which you won’t be borrowing much money make sense.

What are you doing reading about estate planning? You’re supposed to be dancing until dawn. But keep reading — this won’t take long. At your age, don’t bother to put a lot of energy into estate planning. Unless your lifestyle is unusually risky or you have a serious illness, you’re very unlikely to die for a long, long time.

Whether you’re part of a mixed or same-sex couple, a will is a must-have document. Without a will, state law will dictate where your property goes after your death. Without a will, your closest relatives may inherit everything. Another option is to own big-ticket items such as houses and cars together in “joint tenancy” with right of survivorship. Then, when one of you dies, the survivor will automatically own 100% of the property.

Having children adds a level of complication to estate planning. Here’s what to think about.

1. Write a will. Nothing fancy, just a document that leaves your property to whomever you choose and names a guardian for your children. The guardian will take over if both you and the other parent are unavailable. That’s an unlikely situation, but one that’s important to address. If you fail to name a guardian, a court will appoint someone, possibly one of your parents. The other big reason to write a will is that if you don’t, some of your property may go not to your spouse, but directly to your children. The problem with the children inheriting directly is that the surviving parent may need to get court permission to spend or invest the money — a waste of time and money in most families.
2. Consider buying life insurance to replace your earnings if you’re killed. Term life insurance is relatively cheap, especially if you’re young and don’t smoke. You can shop for the best bargain online by consulting free services that compare the rates of companies.

If you’ve made it to a comfortable time in life where you’ve accumulated some wealth and enough wisdom to know that other things matter, too, this is the time to reflect on what you want your legacy to be. But you may well live another 30 or 40 years, so there’s no need to obsess about it. Chances are your conclusions will be different in ten or twenty years, and your estate plan will change accordingly. So here are several considerations.

1. Avoiding Probate To save your family the cost (and hassles) of probate court proceedings after your death, consider creating a revocable living trust. It’s hardly more trouble than writing a will and lets everything go directly to your heirs, bypassing probate court. While you’re alive the trust has no effect, and you can revoke it or change at any time. But after your death, trust property can be transferred quickly, according to the directions you left in the trust document. There are other, even easier ways to avoid probate: You can turn any bank account into a “payable-on-death” account simply by signing a form from the bank and naming someone to inherit whatever funds are in the account at your death. You can do the same thing, in almost every state, with securities.
2. Avoiding taxes If you have enough property to worry about federal estate taxes, consider how much you want to pay in taxes to Uncle Sam and the state. The amount of tax that will be owed by your estate is a changing number due to frequent revisions by state and federal lawmakers. Documents prepared by this firm will reflect current tax codes. One way to reduce these taxes is to give away property before your death. If you don’t own it, it can’t be taxed. An annual gift-giving plan can reduce the size of even a big estate, especially if you have a covey of kids and grandkids. Gifts to your spouse (as long as he or she is a U.S. citizen), direct payment of tuition or medical bills, and gifts to a tax-exempt organization are exempt from gift tax. Keep in mind that annual gifts larger than the current deduction per recipient are subject to gift tax at the same rate as estate tax. Another way to cut taxes is with trusts. Many older couples use an AB trust to leave property to each other for life, and then to their children. The surviving spouse can spend trust income and, in some circumstances, principal. An AB trust can shield up to twice the exempt amount from estate tax. Charitable trusts, which involve making a gift to a charity and getting some payments back, can also save on both estate and income tax. There are many other complex trusts; learn about them on your own and then have an experienced estate planning lawyer draw up the documents you want.
3. Directive to Physicians This legal document tells medical professionals what treatment you want in specific critical situations. The directive form custom-designed by Lynda McMaken received high praise from the Mayo Clinic, where doctors called it, “the best they’d seen.”

Now is the time to take concrete steps to establish an estate plan. Don’t wait another moment.

1. The basics: a trust and/or will. Consider a probate-avoidance living trust and, if you’re concerned about estate taxes, a tax-saving trust. (See above. Write a will or update your old one.
2. Power of Attorney Although no one wants to think about the possibility, at some time, you might become unable to handle day-to-day financial matters or make health care decisions. If you don’t prepare for this possibility, a judge may appoint someone to make these decisions for you. No one wants a court’s intervention in such personal matters, so make the choice yourself — ahead of when you need it. You can choose that person yourself, and give him or her legal authority to act for you, by creating documents called durable powers of attorney. You’ll need one for your financial matters and one for health care. You choose someone to act for you (called your agent or attorney-in-fact) and spell out his or her authority. You can even state that the document won’t have any effect unless and until you become incapacitated. Once it’s signed and notarized, it’s legally valid and your mind can be at ease.
3. Directive to Physicians This legal document tells medical professionals what treatment you want in specific critical situations. The directive form custom-designed by Lynda McMaken received high praise from the Mayo Clinic, where doctors called it, “the best they’d seen.”