“Someone told me to set up a corporation, and to set up individual businesses under this corporation. Is that smart? and why?”==== I guess it is really hard to tell;it depends on many variables. In general, a corporation comes into existence when the articles of incorporation are filed with the secretary of state. Likewise, an SMLLC is formed when articles of organization are filed with the secretary of state. A corporation is a separate legal entity. It can act in many ways just like an individual person. Corporations may create businesses, for example. Doing so may give rise to a parent-subsidiary relationship. A subsidiary is a separate business entity, such as a LLC, owned by another entity, such as a corporation. If a corporation creates an LLC, for the LLC to be a subsidiary, the parent corporation must own all or a substantial majority of the interest in the LLC. To create an LLC subsidiary, the board of directors must approve corporate action to create and file articles of organization with the secretary of state. In the articles, the corporation would list itself in the “members” section of the form. Like corporations, LLCs generally form when the articles of organization are filed with the secretary of state. The llc, as a Subsidiary, can have several advantages. For example, assume a ABC Corporation specializes in making widgets, but wants to branch off into making DEF, a risky but potentially profitable venture. Instead of creating a new branch of the ABC Corporation to handle DEF, the corporation can create the DEF LLC, a subsidiary of the ABC corporation. Doing so adds some additional protections and tax relief. For exampleABC corporation will only be liable for the debts and obligations of DEF LLC up to the extent of its investment in the company. If DEF LLC goes bankrupt, creditors of DEF LLC could not typically attach ABC’s assets, unless an exception to the rule applies.The ABC Corporation that creates subsidiary, DEF LLC, must treat the subsidiary as a distinct and separate legal entity. In other words, the subsidiary cannot simply be a tax shelter or a front used by the parent business to avoid legal obligations. If a company abuses the parent-subsidiary relationship -- such as commingling funds, under-funding the subsidiary and otherwise treating it as a simple extension of the parent company, instead of a distinct entity -- creditors and interested parties may be able to “pierce the corporate veil” and hold the parent company responsible for the subsidiary’s actions. Much of the same decisions that went into creating a corporation also go into creating a subsidiary. Additionally, the corporation must consider other issues, such as what effect, if any, the subsidiary will have on the corporate shareholders and how the subsidiary business will help or harm corporate business operations in general. Before proceeding, I guess you neeed to consult with a business law professional to address individual questions and concerns or for professional help.
“ If not should I set up an LLC for each? House painting and my ebay/Car sales? “===========I guess so; as they are two separate busineses; You need to file 2 Sch C forms if you have 2 businesses;you need to do two separate Sch Cs and then add the net income figures together before you go on to Sch SE whether you set up two sole proprietors or SMLLCs. Example: if one made net earnings of $9K and the other lost, net loss of $1K, the total would be $8K and that would go on top of the sch SE and onto the 1040.
“One last thing I have been continually reinvesting my ebay sales income, purchasing more and more inventory. Is this inventory deductible as business expense?”========No; but you can deduct COGS when you sell your products; Since your business purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. Some of your expenses may be included in figuring the cost of goods sold. Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense.The following are types of expenses that go into figuring the cost of goods sold.•The cost of products or raw materials, including freight