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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. 

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.

"Clean" Dissolution Necessary for Ending Business Partnerships

Author: Keith Huggett

Dissolving a business partnership can be delicate and complicated, especially if everyone doesn’t agree on how things should proceed. Whether or not you’re the partner driving the dissolution, you have both obligations and options. This is one of those times when it pays to be fully informed.

Ensuring a “clean” dissolution is critical to avoid future problems, so you need to protect yourself. You want to be sure that no partner can continue to incur business debt and that you won’t be responsible for another partner’s debts and liabilities, especially if the business is continuing without you.

A good partnership agreement outlines how the dissolution should proceed.

If you have no agreement, or it doesn’t address ending the business partnership, it’s imperative that you consult an attorney and tax professional to ensure your interests are fully protected. Failure to do so could put you at risk, and you don’t want some court to decide what will happen, because things might not go your way at all.

Before you do anything, consider:

• The value of your business. Typically, each partner will receive assets and be responsible for liabilities according to their percentage of ownership.
• The potential ramifications of dissolution on any existing contracts or other agreements. You don’t want to be responsible for ongoing debts after the business partnership is dissolved.

There aren’t any specific tax ramifications to dissolving a business partnership, but each state’s regulations are a bit different. Even if you don’t need to file an official dissolution document, it’s a good idea to notify everyone – including official entities, vendors and other creditors -- that the business partnership has ended.

Failure to consider – and truly understand – all the nuances of business partnership dissolution could cost you dearly. Contacting one of our experienced professionals here at The Tax Office Inc. can help you sort out the financial details and ensure you’re fully protected – before, during and after your business dissolution.