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Start-up Ventures Need Preparation for All Possibilities

Author: Keith Huggett

Starting a business is exciting. But even though you’re eager to get the doors open and make that first sale, taking the time now to start off smartly will do more to ensure your success than nearly anything else you do -- especially if you’re entering into a business partnership.

Unclear expectations cause the downfall of many partnerships. It’s great if you like and respect one another, but it takes more than friendship to manage and lead a business.

Make sure you know your prospective partner’s values, priorities and goals -- both personal and for the business. Work together on a specific project. Or interview each other to discuss “what if …” questions and see how you like each others answers.

If you’re planning a business partnership with relatives, be extra careful. You don’t want to end up straining or damaging family relationships.

Get It In Writing

A business partnership is much like a marriage, and a well-considered “prenuptial” agreement will help smooth your future together. Your partnership agreement should define:

• Ownership: Who is investing what resources and how each partner will recoup that investment, including compensation.
• Roles and responsibilities: You’ll need compatible working styles and complimentary talents, skills and experience.
• Exit strategy: Agree now on what will constitute “the end,” but also identify what will happen if your lives or your goals change.

Plan to be flexible, but don’t mistake vagueness for flexibility.

Create A Communications Plan

You must be entirely comfortable openly discussing how you’ll begin and run your business. Decide in advance how you’ll handle day-to-day communication as well as regularly scheduled status and planning meetings.

Like life itself, change happens -- and sometimes things don’t go the way you want or expect. You simply can’t predict the future. So consult an attorney and contact us here or give us a call to ensure you’re asking the right questions and not overlooking important details. We’ll give you impartial, knowledgeable advice.

By planning for better or worse, right from the start, you can ensure your business partnership is harmonious and profitable for everyone concerned. 

Author: Keith Huggett

The type of business entity you have informs how you will be taxed. When forming a company, it is important to understand the different types of entities so you can decide which one makes the most sense for you. Many small-business owners elect to form a limited liability company (LLC) or S corporation because comparatively little reporting is required for these types of businesses. 

Whether you decide on an LLC or an S corporation will depend on several factors:

• Setup: LLCs are easier to set up and require little in terms of maintenance to stay in good standing. The requirements vary from state to state, so be sure to work with a professional to ensure that your business is compliant. S corporations have stricter requirements for shareholders and can be more costly to set up.

• Tax filing: If you are the single owner of the business, tax filing for an LLC is easier than for an S corporation. Because an LLC is basically a pass-through entity, a sole owner only has to file one tax return, while an S corporation requires additional paperwork.

• Income tax: This is perhaps the biggest difference between an LLC and an S corporation. LLC owners are required to pay self-employment tax on all income generated by the company, which can get quite costly. On the other hand, owners of an S corporation are simply required to pay themselves a reasonable salary that is in line with market rates. Any additional income earned by the business can be distributed as dividends, which come with a lower tax rate.

There are many similarities between an LLC and an S corporation, which can make it confusing for business owners. Working with a qualified tax professional can help you make a more informed decision.

The Tax Office Inc. can help you decide which entity is right for your business. Whether you are forming a new company or changing the structure of your existing business, our professionals have the expertise you need to get it right the first time. Contact us today to learn more.

Incorporation Proves Beneficial to Businesses

Author: Keith Huggett

Incorporating your business not only lends credibility to it, but also builds in protection for your personal assets. Without the virtual shelter of incorporation, you could lose your home and other personal property if someone sues your company.

But which tax-efficient business structure (incorporation option) is best for your business? It depends on the size of your company and additional factors. Here are some of your choices and some general guidelines:

• C corporations – C corporations are appropriate for large companies that have more than $10 million in assets and file more than 249 returns with the IRS annually. These include the Form 1120 corporate return, 1120-W estimated tax returns and employment/unemployment  tax returns.

• S corporations – S corporations have fewer than 101 shareholders; these must be individuals or certain estates and trusts that function as individuals. Such corporations allow shareholders to pass income and losses through to their personal returns, which lets shareholders avoid the double taxation that can occur with C corporations.

• Limited Liability Companies (LLC) – LLCs are becoming more popular because of their simplicity. They grant the owners of the business personal asset protection, but individuals can choose to file personal returns instead of corporate ones. Small business partnerships and single-owner small businesses typically find that an LLC is the most tax-efficient business structure for their needs. Still, it depends on your local state laws and type of business. For example, insurance companies and banks cannot form LLCs.

This is a critical decision, one that will have great impact on the future of your company. So you must choose wisely. At The Tax Office, we specialize in helping you choose a tax-efficient business structure that meets your unique needs.

We also offer tax preparation, planning, representation, online bookkeeping and complete accounting services for you and your business. We will listen to you and help you determine the best ways to grow.

Contact us today to see how we can help you put the pieces of your company's financial puzzle together.

Businesses May Need Change of Structure

Author: Keith Huggett

So you’ve been operating your business as a sole proprietorship for a while, perhaps even several years, but now you’re wondering if you’ve outgrown this arrangement.

It’s not uncommon for sole proprietors to convert to another business structure as their business grows and needs change.

Your sole proprietorship was easy to set up, and you’re beholden to no one because your business isn’t really a legal entity. On the other hand, you’re personally liable for the whole thing, so your assets are at risk. You have to pay self-employment tax on your profits. And, technically, you have no business to pass along or sell if you die or want to move on.

Now you need additional expertise to develop products or manage the company, or you need more capital to expand. Bringing on one or more partners or becoming a corporation may be the answer. Or maybe you want to reduce your level of risk and you’d feel better-protected by becoming a limited liability company (LLC).

In essence, options other than sole proprietorship include:

• A general partnership. Partners share the burden and the wealth, but a formal agreement is essential.
• A limited liability company (LLC), also easy and flexible. You get the liability protection of a corporation, but you can sidestep onerous procedural requirements.
• A corporation, which offers clear separation of personal assets, tax savings, and the best opportunities for outside investment. But you’ll face lots of formal procedures and reporting.

Whatever you choose, there will be plenty of paperwork involved. And of course there are some costs. But those are temporary – think of them as growing pains.

Is this the right time to switch your business structure?

It’s the perfect time to consult a tax professional. Here at The Tax Office Inc., we understand the nuances of all business types as well as the ramifications for your specific business, so we can help you carefully evaluate the pros and cons of moving beyond a sole proprietorship.

If you’re seriously considering a change, contact us today and let us help you make the right decision.

Incorporation Only the Beginning

Author: Keith Huggett

Business incorporation is just the first step to starting a successful company. Now that you have reached that important milestone, you have a long and (hopefully) profitable road ahead. Follow these tips to keep your operations running as smoothly as possible from day one:

• Don't reinvent the wheel: Thousands of entrepreneurs before you have already made the mistakes that you can seek to avoid by educating yourself. Network with other business owners in your area, participate in online forums relevant to your industry and do thorough research before you take any major steps.

• Consult a tax professional early: Business taxes are different from personal taxes and you can avoid costly mistakes by engaging a tax professional as soon as you start your business. If you wait until the end of the year, you may discover that you missed quarterly filing or payment requirements, which can result in penalties that will cost you a lot more than compliance.

• Understand your customers: Find out what your customers value most and give it to them. Remember that it may not be what you most expect. If you offer a similar product or service to your competitors, you may stand out from the crowd by a offering better customer service experience or providing free consultations. If you're not sure what makes your customers tick, ask them directly or observe your competitors' successful activities and improve upon them.

• Consider outsourcing: Business incorporation is relatively simple compared to actually running your business. Focus on your core strengths and consider outsourcing administrative tasks such as payroll and bookkeeping to a qualified provider. You'll be able to spend more time on growing your business, and you won't make many of the tax and accounting mistakes that often cost new business owners a lot of money. 

The Tax Office Inc. team has decades of experience with helping small businesses with tax planning, tax preparation, bookkeeping and other accounting services. Contact us today to learn more about how we can help you after business incorporation. We can also help you incorporate your business if you haven't yet completed that crucial step.  "Staying Compliant in a Corporate World," an informational white paper can provide anwers for your corporate compliance questions.

Which Entity is Right for You?

Author: Keith Huggett

When forming a new company, you want to get it right the first time. This is why it's so important to select the right type of entity. If you have decided that a corporation is the right path, you need to determine which type of corporation makes the most sense: S Corporation or C Corporation.

A C Corporation is basically the designation the IRS gives to regular corporations. The profits of these corporations are taxed, as well as the dividends to shareholders, sometimes resulting in double taxation. If you want to avoid this situation, an S Corporation may be a better option. In an S Corporation, the business itself is not taxed, but the shareholders are. 

In addition to avoiding double taxation, there are several other advantages to this type of business entity:

• Lower taxes: Unlike an LLC, which taxes the members based on the total net income of the business, shareholders of an S Corp are taxed solely on their wages. However, it is important to be aware of the requirement that shareholders must be compensated reasonably; excessively low wages are a red flag for the IRS.

• Business expenses: Shareholders can claim certain business expense deductions on their tax returns. However benefits such as health insurance are considered taxable income if the shareholder has 2 percent or more shares.

• Business protection: Because an S Corporation is an entity separate from its shareholders, the business can continue to operate smoothly even if shares are sold. This independence also protects shareholders from liability claims related to the business.

In order to become an S Corporation, you must first create a C Corporation. The IRS places restrictions on when a company can change its designation to an S Corporation, so it's important to work with a qualified professional who can help you maintain compliance.

If you need help forming a new business entity or changing your existing designation, contact the professionals at The Tax Office, Inc. We'll help you determine which designation makes the most sense for your company. We also provide corporate tax services, bookkeeping and dissolution's.

New Businesses Have Options for Structures

Author: Keith Huggett

When starting a new company, you have several business structures from which to choose. Making the right choice can mean saving on taxes, protecting your personal finances and ensuring smart growth. Review the following descriptions and work with a qualified tax professional or business adviser to help you decide which type is right for you.

There are five primary types of business structures:

• Sole proprietorship: If you are the sole owner of a business you can set it up as a sole proprietorship. All income generated by the business is included in your personal income taxes, and you are personally liable for any debts incurred on behalf of the business.

• Partnership: A partnership is similar to a sole proprietorship with the exception that the business has multiple owners. Again, the income generated is claimed on personal income tax returns.

• Corporation: Unlike a sole proprietorship or partnership, a corporation is treated as a separate entity and is taxed as such. This means that profits generated by the business are taxed, and any income you generate from the business is also taxed. Corporations also have more stringent filing requirements.

• S corporation: Companies that want to avoid double taxation sometimes opt for an S Corporation, which passes all the profits and losses of the company through to the shareholders. Certain criteria must be met in order to qualify. For example, no more than 100 shareholders are allowed.

• Limited liability company (LLC): An LLC is also a pass-through entity, meaning the owners claim profits on their personal income tax returns. However, unlike a sole proprietorship or partnership, any financial losses are the responsibility of the company, not its owners. This provides a certain amount of financial protection for the member owners while still allowing a lot of flexibility. When filing taxes, an LLC has the option to file as an individual, a partnership or a corporation.
  

If you're not sure which of these business structures is right for your company, let the professionals at The Tax Office, Inc. help. We can evaluate your business and make recommendations to help you save money and grow wisely. Contact us today to learn more.

An Enterprising Endeavor!

Author: Keith Huggett

Starting a new company is exciting, but business taxes can sneak up on you if you don't plan ahead. It's easy to get caught up in the enthusiasm of launching a new company, but keeping your books in order from day one can save you a lot of money in the long run.

Follow these tips to help you stay on top of your business taxes:

• Work with a tax expert. If you do not already have experience with business taxes, work with a financial professional who does. Tax mistakes can be costly and these expensive errors are entirely avoidable if you know what you are doing.
• Select the right business entity. There are several types of business entities and the one that makes the most sense for your company will depend on a variety of factors. This is the type of decision that your tax adviser can help you with.
• Set your books up properly. Depending on the type of business you have, you will have to set up your chart of accounts to account for certain contributions or expenses. For example, if you invest in the company, it is important to categorize this amount as a capital contribution and not as taxable income for the business.  You can also choose to outsource your accounting services entirely. Your tax adviser can provide information about this services as well.
• Don't forget about estimated quarterly tax payments. As a business owner, you have to make quarterly payments based on your estimated earnings. Your tax adviser can help you estimate this amount. Underpaying can result in penalties, while overpaying takes cash out of your pocket unnecessarily.
• Take the home office deduction. If you work exclusively from a home office you are eligible to take a tax deduction on the associated expenses. Your tax adviser can help you calculate the correct amount so you do not overestimate -- or underestimate -- the deductions you are entitled to.

Simple Steps To Pay Less

Author:

When you own or manages a small business you are often called upon to handle many different jobs all at the same time, the most import of which is to keep money flowing smoothly into the coffers.  One way to accomplish this is to pay out less in taxes. Here are a few simple strategies that may help:

1. When first forming your business, give careful consideration to the business structure you choose. The tax ramifications can be significant. You have the choice between a sole proprietorship, a partnership, corporation, or a limited liability company.
2. When purchasing equipment for your business, remember that you are allowed to deduct the entire cost of certain depreciable equipment in the year it is purchased. While most business equipment is depreciated over several years, small businesses are allowed this Section 179 deduction each year, with certain dollar limits. If your total equipment purchases exceed a certain amount for the year, the expensing option phases out, and the deduction is also limited to the amount of your taxable income for the year.
3. Because sel employed taxpayers are required to pay taxes through estimated payments, you want to be certain that you are sending timely payments in adequate sums. Late or inadequate payments mean that you will be assessed penalties and interest charges.
4. Knowing the difference between an "employee" and an "independent contractor" means avoiding penalties from the IRS too. Outsourcing your payroll can alleviate this all too common headache.
5. Remember that the IRS is not your bank. When cashflow runs tight, that skimping on your payroll taxes is not an option. If you pay your suppliers and then your employees, and you leave off the payroll taxes, the IRS will take steps to minimize the liability as quickly as possible. Whether or not you own the company, you could be determined to be a "responsible person." This means that the IRS can hold you 100% responsible for the payroll deficiency. 

The Complexities of Partnerships

Author: Keith Huggett

Tax preparation for partnerships is more complicated than preparing taxes for sole proprietorships or single-member entities. If you are in a partnership, you have to file extra tax paperwork for your entity. You also will need to provide additional returns to your partners as well as employment returns for any income that you pay them as employees.

You have to file a Form 1065 partnership return every year by April 15. The 1065 contains information on your partnership's income, expenses and, hopefully, profits. Since partnerships are pass-through entities, you also need to file K-1 forms. The K-1 is an information return that you provide to your partners that shows them what proportional share of the partnership's income, loss and write-offs they are able to claim. You and your partners then use that information to complete your tax returns.

To file the 1065, you need to have your partnership's books in order. To file your personal tax return, though, you need your K-1 from the partnership. This can cause a timing issue. If you are used to filing extensions for your personal tax return to get more time to file, you still can. You cannot, however, file an extension for your partnership since it needs to get its K-1 returns out to the partners. You can end up under even more tax preparation time pressure if you or your partners do not want to file extensions for your personal taxes since the partnership will then need to get its K-1s out well in advance of April 15.

Given the timing issues, filing all of the necessary returns for a partnership can be a daunting task. The Tax Office, Inc. can help. Please contact us so that we can get started on the tax preparation of your returns.