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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.

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.

Incorporation Has Advantages and Disadvantages

Author: Keith Huggett

Ask almost anyone who has more than a few days' experience in the world of business about the benefits of business incorporation, and you are sure to hear a vague response about tax shelters and personal liability. Although those are accurate ideas, they are not the only benefits of incorporation. Similarly, there are also disadvantages associated with forming a corporation.

Benefits Of Incorporation

Business incorporation automatically increases your ability to fund a company through the sale of shares, and it positions an organization for future move into the public arena. A corporate status can also provide some protection against personal liability for the individual. Finally, some corporate structures provide limited tax benefits. Contrary to popular belief, however, not all corporate structures provide for reduced tax burdens.

Corporate Disadvantages

Corporations require a certain level of structure and the observance of formalities and meeting requirements set out in state and federal legislation. Corporations can be expensive to start and some types of corporations can provide for a heavier tax burden, especially for fledgling businesses. Corporate entities are also required to complete annual and quarterly filings with a variety of regulatory bodies, creating an added expense in labor and data maintenance.

Who Should Incorporate?

A quick Google search on business incorporation will garner millions of hits, and everyone seems to have a different idea on who should incorporate. The truth is, there is not a formula that indicates whether your company would benefit from incorporation. The decision about whether that step is right for your company at any give time depends on individual information regarding company finances, staff size, business model and the state of the market. Most companies choose to seek expert financial advice and review numerous business models prior to making the decision for incorporation.

If you are considering business incorporation and need more information about whether your company would benefit from such action, The Tax Office, Inc. can help. Contact us today for a free tax analysis to find out about our expert services.