Sole prop to ? entity change

[tracyb]

Husband Wife-Sole Prop(Auto repair shop), Community prop state would like to change entity class due to the following:


-would like to pay themselves through payroll

-sponsors motocross race team (2 out of 5 team members are their own children)

**Revenue is generated from sponsoring race events& advertising at events. New auto repair customers are retained***


Is there an issue with considering this advertising/sponsorship a deduction for tax purposes (soleprop)? Would an entity change remedy the sponsorship issues(if any)above?


Any thoughts would be appreciated.


Tracy

[Brad Imsdahl]

The deductibility of advertising and/or sponsorship costs is not dependent on choice of entity. In general, the same code section that applies to ordinary and necessary business expenses for corporations also apply to sole proprietorships.

As far as wanting to pay themselves a wage, I would ask why? Why do they need to pay themselves a wage?

I would suggest you look at the business entity comparison chart in TTB, page 5-5, before deciding to incorporate for something that might not even be an issue.

[dsi]

Brad offers some good advice.

[brightonea]

As a Sole Proprietor, if one spouse puts the other spouse on payroll, there could be a great opportunity for healthcare benefits using Sec105. Also if any of the kids are under 18 another planning opportunity exists for minimizing taxes due to no SS tax on kids.

[dsi]

Some more good advice.

[ChEAr$]

However,

sponsoring race events might open up liability issues.

Best check with local competent (?) legal counsel and if
warranted, go for the LLC with S corp twist.