Many business owners use the sole proprietorship because it is easy to set up, maintain, and take deductions. Unfortunately, this is where the benefits end.

Basically, if you do not choose a business entity then by default you become a sole proprietor and are limited by the number of deductions you can take. In other words, it is the "bottom of the barrell, " for deductions. At least take a look at other entities like the LLC or Corporation. You might find that you have been missing out on some great tax deductions.

Statistically, by using a sole proprietorship you are ten times more likely to be audited by the IRS. Most likely this is because there are so many more sole proprietors than any other business entity.

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 With the current housing market causing untold numbers of bankruptcies and foreclosures many homeowners are asking how they can protect their business and personal assets from creditors. One of the greatest tools for protecting your assets is a carefully drafted Limited Partnership.

In the event of a bankruptcy, the Limited Partnership Agreement controls the assets inside of a Limited Partnership. For example, if a partner with 20% interest applies for bankruptcy their 20% ownership can now be turned over to the bankruptcy trustee. The bankruptcy trustee only has minimal rights associated to the 20%. It is critical that the language of the Limited Partnership have provisions that provide protection and removal of a partner in the event of bankruptcy or foreclosure, therefore preventing the trustee from taking any control of the partnership. The trustee cannot even be a limited partner or a substituted limited partner. The bankruptcy trustee can only be presumed to be an assignee of potential income. Hence, the bankruptcy trustee has almost no negative impact on the partnership. The partnership must however, be established before the bankruptcy can reasonably be anticipated.

Keep in mind this does not mean you can set up a Limited Partnership for the sole purpose of protecting your assets in the event of a bankruptcy or foreclosure.  This would be called a fraudulent conveyance and all protections would be void.

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