Kentucky business owners will often form a corporate or other business entity due to tax considerations. Without this formation income and tax expenses can end up on one's Schedule C for the personal tax return. The problem with a Schedule C is that this sort of tax return is one that may trigger an audit by the IRS.

There are other reasons for considering forming such an entity as well.  Formation of such an entity can provide a greater degree of liability protection.  Also, formation of an entity can allow for multiple owners of the business.  

An important consideration to be made when forming a corporation is whether one wants to go for an S or C status. Corporations are considered to be C corporations if the business owners do not file for S status.

If one does elect to go with an S corporation, the taxes will be handled in much the same manner as a partnership. The shareholders of an S corporation will pay the taxes personally. A C corporation is somewhat more complex in that the corporation pays tax upon its net income while shareholders will then pay tax on distributions.

There are restrictions on how an S corporation can be formed including keeping the number of shareholders to 100 or less. However, there can be difficulties when converting from a C corporation to an S corporation. It may be in the best interest of those forming such a corporation to make a decision on whether to make an S election in the first 75 days.

Advice from a business lawyer can be extremely useful when setting up a small enterprise. Beyond advising on the type of entity that is to be formed, lawyers can assist in other endeavors as well when it comes to taxation, financing and regulatory compliance.