So you've found the love of your life – but now it's time to combine bank accounts. As much as a marriage is about creating a lasting bond with the person you love, it's also important to remember that a marriage is a business partnership. Sharing your life with someone means sharing every part of it, including your financial situation. There are a lot of misconceptions about the financial ramifications of marriage, and it's time to learn what's true and what's not.
Myth: Getting Married Always Improves Your Tax Situation
We've all heard people joke that they're just going to get married for the tax benefits. Without a doubt, married couples filing jointly do often see more benefits than those filing separately. Couples typically have lower income tax liability, the standard deduction generally is higher and you may apply for other tax benefits that don't apply to single filers. However, there are still certain situations in which filing separately may be the best option. It is important to remember that filing jointly means you are jointly responsible for any interest or penalties incurred by your spouse. You may consider filing separately if you feel as though your spouse is filing inaccurately or dishonestly or is having too little federal tax withheld from their paychecks. If one spouse has higher medical expenses, it may also be a good idea to file separately. Keep in mind, however, that those filing separately are not eligible for many of the benefits joint filers receive, like the Earned Income Credit and education credits, and only one spouse may claim a child as a dependent.
"Communication with your partner is vital when it comes to being financially successful as a married couple" - Leslie Tayne
Myth: Married Couples Have To Have Joint Bank Accounts and Credit Cards
If your spouse is carrying a lot of credit card debt, it may best to maintain separate accounts and pool your resources so you can avoid becoming legally responsible for their debt, which can also affect your credit score. While this may not be the most romantic move, it can be financially beneficial to both of you in the long run. If you do wish to have a joint credit card and your partner is carrying debt, open a new card together instead of adding your name to one of their existing accounts.
Myth: You Can Maintain Complete Financial Independence Once You're Married
There are misconceptions on both sides of the coin here. Many people go into marriage thinking that they are going to be able to keep all of their money separate from their partner's and that that will work out just fine. Most likely, this won't be the case. Married couples have to make a lot of financial decisions together, even if they are pulling from separate accounts. Holding on too tightly to the idea of “my money" may lead to conflict with you and your partner somewhere down the line. While you can certainly maintain some of your independence – and may want to if your partner has a bad credit history – it's important to realize that the big decisions should be a team effort.
"There are endless benefits to being married – including financial perks. Being educated on how marriage will change your money situation can help you find your financial happy ever after" - Leslie Tayne
Myth: Being Married Improves Your Credit Score
In the same vein, combining your finances with your partner's does not necessarily mean your credit score will improve. Both of you will continue to carry your own individual credit score, even if you combine your accounts. Any debt of your own that you carry will continue to affect your score regardless of how well your joint accounts are doing. However, having your name added as an account holder on your spouse's account that is not in good standing will have a negative effect on your credit score. Additionally, any accounts or loans you may try to open together will take both of your scores into consideration.
Myth: You Should Open New Credit Cards If You Change Your Name
It is a common misconception that you must cancel any credit cards bearing your former name if you change it once you get married. This is simply not true – you can contact your credit card company and have your name changed on the account, and they will send you a new card with your new name. Keeping credit cards open, particularly ones with positive credit history will be in your best interest.
"As much as a marriage is about creating a lasting bond with the person you love, it's also important to remember that a marriage is a business partnership. Sharing your life with someone means sharing every part of it, including your financial situation" - Leslie Tayne
Myth: Talking About Finances Will Ruin Your Relationship
Talking about money can often be an uncomfortable subject, mainly if you fear you may have differing opinions about finances than your partner and feel as though broaching the topic may lead to conflict. However, avoiding the issue will only lead to trouble. Talking openly and honestly about your financial situation, spending habits and savings goals will only serve to strengthen your relationship and allow you and your partner to make well-thought-out decisions that will benefit both of you. If you make money talk a regular, everyday part of your relationship, you will be better equipped to address disagreement if it does in fact arise.
"Talking openly and honestly about your financial situation, spending habits and savings goals will only serve to strengthen your relationship and allow you and your partner to make well-thought-out decisions that will benefit both of you." - Leslie Tayne
Communication with your partner is vital when it comes to being financially successful as a married couple. If you have had credit problems in the past, be honest with your spouse about how it could affect your situation. If your spouse has had credit problems, be open about your concerns and consider how their financial history could affect your own standing. There are endless benefits to being married – including financial perks. Being educated on how marriage will change your money situation can help you find your financial happy ever after.
Business entities can be defined as the corporate, tax and legal structures which an organization chooses to officially follow at the time of its official registration with the state authorities. In total, there are fifteen different types of business entities, which would be the following.
- Sole Proprietorship
- General Partnership
- Limited Partnership or LP
- Limited Liability Partnership or LLP
- Limited Liability Limited Partnership or LLLP
- Limited Liability Company or LLC
- Professional LLC
- Professional Corporation
- Nonprofit Organization
- Cooperative Organization
As estates, municipalities and nonprofits do not concern the main topic here, the following discussions will exclude the three.
Importance of the State: The Same Corporate Structure Will Vary from State to State
All organizations must register themselves as entities at the state level in United States, so the rules and regulations governing them differ quite a bit, based on the state in question.
What this means is that a Texas LLC for example will not operate under the same rules and regulations as an LLC registered in New York. Also, an LLC in Texas can have the same name as another company that is registered in a different state, but it's not advisable given how difficult it could become in the future while filing for patents.
To know more about such quirks and step-by-step instructions on how to start an LLC in Texas, visit howtostartanllc.com, and you could get started with the online process immediately. The information and services on the website are not just limited to Texas LLC organizations either, but they have a dedicated page for guiding fresh entrepreneurs through the corporate tax structures in every state.
Sole Proprietorship: Default for Freelancers and Consultants
There is only one owner or head in a sole proprietorship, and that's what makes it ideal for one-man businesses that deal with freelance work and consulting services. Single man sole proprietorships are automatic in nature, therefore, registration with the state is unnecessary.
Sole proprietorships are also suited to a degree for singular teams such as a small construction crew, a group of handymen, or even miniature establishments in retail. Also, this puts the owner's personal financial status at jeopardy.
Due to the fact that a sole proprietorship entity puts all responsibilities for paying taxes and returning loans, it directly jeopardizes the sole proprietor's personal belongings in case of a lawsuit, or even after a failed loan repayment.
This is the main reason why even the most miniature establishments find LLCs to be a better option, but this is not the only reason either. Sole proprietors also find it hard to start their business credit or even get significant business loans.
General Partnership: Equal Responsibilities
The only significant difference between a General Partnership and a Sole Proprietorship is the fact that two or more owners share responsibilities and liabilities equally in a General Partnership, as opposed to there being only one responsible and liable party in the latter. Other than that, they more or less share the same pros and cons.
Registration with the state is not necessary in most cases, and although it still puts the finances of the business owners at risk here, the partnership divides the liability, making it a slightly better option than sole proprietorship for small teams of skilled workers or even small restaurants and such.
Limited Partnership: Active and Investing Partners
A Limited Partnership (LP) has to be registered with a state and whether it has just two or more partners, there are two different types of partners in all LP establishments.
The active partner or the general partner is the one who is responsible and liable for operating the business in its entirety. The silent or investing partner, on the other hand, is the one who invests funds or other resources into the organization. The latter has very limited liability or control over the company's operations.
It's a perfect way for investors to put their money into a sector that they are personally not experienced with, but have access to people who do. From the perspective of the general partners, they have similar responsibilities and liabilities to those in a general partnership.
It's the default strategy for startups to find funding and as long as the idea is sound, it has made way for multiple successful entrepreneurial ventures in the recent past. However, personal liability still looms as a dangerous prospect for the active partners to consider.
Limited Liability Company and Professional LLC
Small businesses have no better entity structure to follow than the LLC, given that it takes multiple good ideas from various corporate structures, virtually eliminating most cons that are inherent to them. Any and all small businesses that are in a position to or are in requirement of signing up with their respective state, usually choose an LLC entity because of the following reasons:
- It removes the dangerous aspect of personal liability if the business falls in debt or is sued for reparations
- The state offers the choice of choosing between corporation and partnership tax slabs
- The limited legalities and paperwork make it suited for small businesses
While more expensive than a general partnership or a sole proprietorship, a professional LLC is going to be a much safer choice for freelancers and consultants, especially if it involves risk of any kind. This makes it ideal for even single man businesses such a physician's practice or the consultancy services of an accountant.
B, C and S-Corporation
By definition, all corporation entities share most of the same attributes and as the term suggests, they're more suited for larger or at least medium sized businesses in any sector. The differences between the three are vast once you delve into the tax structures which govern each entity.
However, the basic differences can be observed by simply taking a look at each of their definitive descriptions, as stated below.
C-Corporation – This is the default corporate entity for large or medium-large businesses, complete with a board of directors, a CEO/CEOs, other executive officers and shareholders.
The shareholders or owners are not liable for debts or legal dispute settlements in a C-Corporation, and they may qualify for lower tax slabs than is possible in any other corporate structure. On becoming big enough, they also have the option to become a publicly traded company, which is ideal for generating growth investments.
B- Corporation – the same rules apply as a C-Corporation, but due to their registered and certified commitment to social and environmental standards maintenance, B-Corporations will have a more lenient tax structure to deal with.
S-Corporation – Almost identical to a C-Corporation, the difference is in scale, as S-Corporations are only meant for small businesses, general partnerships and even sole proprietors. The main difference here is that due to the creation of a pass-through entity, aka a S-Corporation, the owner/owners do not have liability for business debt and legal disputes. They also are not taxed on the corporate slab.
Cooperative: Limited Application
A cooperation structure in most cases is a voluntary partnership of limited responsibilities that binds people in mutual interest - it is an inefficient structure due to the voluntary nature of its legal bindings, which often makes it unsuitable for traditional business operations. Nevertheless, the limited liability clause exempts all members of a cooperative from having personal liability for paying debts and settling claims.
This should clear up most of the confusion surrounding the core concepts and their suitability. In case you are wondering why the Professional Corporation structure wasn't mentioned, then that's because it has very limited applications. Meant for self-employed, skilled professionals or small organizations founded by them, they have less appeal now in comparison to an LLC or an S-Corporation.