Selecting The Structure

This month, we’ve looked at some of the most common and popular structures for businesses and today, I want to wrap that up a bit by sharing some things to think about before you make any decisions.

Basically, I’ve got five questions for you to think about, and, if the answer isn’t “clear,” then you should consider sitting down with a tax professional or legal counsel that focuses on business to make sure you’re headed in the right direction.

So let’s dig in!

·      What extent do you, as the legal owner, need to be shielded from legal liabilities? 

While an LLC,  an S-Corp, or a C-Corp all offer this to a greater or lesser degree, other structures, like a sole proprietorship, offer no legal protections to your personal assets. Now, this might be okay if you were a writer or a computer programmer who did contract work, for example, but the real world we live in is a litigious one. You MIGHT get away with a good insurance policy to cover a sole proprietorship, but today, I really cannot recommend it, especially given the low cost of entry into the LLC game. 

·      Where are the opportunities to mitigate taxation in the business? 

The truth of the matter is, a business that has little to deduct or write off may not need a lot of tax options. On the other hand, smart business owners know that designing their company and choosing the right entity structure allows for long-term growth and planning, too. Even though a sole proprietorship might be “right” now, what happens when that company suddenly experiences rapid growth? “Tax problems” might seem fun, because they generally mean you’ve made a lot of money, but planning ahead and choosing the right structure can prevent worry down the road. 

·      What are the real-world costs of doing business?  

A C-Corp offers the singular best protection to owners, but the administrative costs of setting one up and managing it year after year can be immense. Obviously, there’s a balance to be struck between the tax liabilities, management costs, and overall profitability, so these all need careful consideration based on your own growth and expansion plans. 

·      Obviously, this leads to the long term goal – the entity structure you choose must be flexible for the future. There’s simply no way around this one! The structure you create and use has to provide you with the amount of protection and tax mitigation you feel is correct (I know how subjective that is) and it needs to ensure that your business growth is protected in the long run, too. The last thing you want to do is build a business as a sole proprietorship, then grow too fast and open yourself up to a lawsuit and a huge tax bill!

·      Building on that flexibility, your entity should be able to handle long term challenges. 

When you build it right the first time, you need not worry about how the business can be sold, or what happens if one partner wants to get out of the company. The business structure helps to dictate the rules of survivorship, ownership, and even taking a company public. This is why it’s so critical to make sure you understand your long term goals for growth and expansion, no matter how small your business is today.

NONE of these are “easy” questions, if you think about them properly. That’s why I shared them! On the other hand, every one can be sorted out and does have a specific answer for you and your business. As always, I’m happy to help you find those, so if you’re struggling with them, don’t worry – schedule a time for us to talk and we’ll be happy to figure out the right answer to each and every one of them. 

See you soon!

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm, so we can schedule a confidential consultation to explain options to permanently resolve your tax problem Make an appointment here!  Or, call Toll-free 1-855-254-1892.

Is There Growth Outside of Wall Street?

I get asked – usually several times a week – where there is “positive” growth in any market. Now, usually, the person asking is searching for an alternative to an IRA, or even a 401(k), and, if I know a little of their personal finances, I can give them one of several answers. 

It seemed like a good time to have that discussion in one of the monthly emails, so let’s get down the rabbit hole on it, shall we?

First of all, there is such a thing as “scale” when it comes to investing. Yes, I know “risk” plays a huge part, too, and that’s a conversation you’ll have to have with yourself, your family, or your significant other. 

I can’t fix them, but I can share some places I realize my savvy clients stash money. 

The first thing to remember is this: retirement accounts are all about long term growth. You’re not going to (or you shouldn’t) expect to double your money in a year or two. When you check off Wall Street, you see a different level of risk and reward. 

My first example is cryptocurrency. Bitcoin and a host of other names are creating a good deal of news and more than a few millionaires nearly daily. Since the market is still shockingly new, there is significant money being earned and not as many rules (per se) on what that “gained” money does afterwards. A “real world” example is this: Bitcoin nearly quintupled in the last year alone. If you took your maximum contribution for your company 401(k) this time last year and invested in Bitcoin, you’d have six figures now. 

In reality, that’s kind of scary, because that sort of growth nearly always comes with a drop. And it will, and it has, but year over year, it seems to continue to grow at a far higher rate than most traditional stocks and mutual funds. 

The next choice is the rally on the opposite end of the spectrum – if crypto markets represent the newest ways to invest, then real estate might represent the oldest. 

Yeah, the truth is, they’re not making any more land, and those who own it will, ultimately, make money. Now, obviously, two acres on a dirt road in Slapout, Alabama is probably never going to be worth what two acres in Manhattan will be, but real estate – invested with some due diligence – will almost inevitably grow in value. The downside? Will the costs of that real estate be worth it in the long run? With undeveloped property? Probably not. The key, at least with real estate, is to make sure it’s doing something. Improve it, build on it, rent it out, make it work. Two acres in Manhattan with offices or apartments can make you a wealthy person. That same two acres in Alabama, with a long term lease and a Dollar General on it, can also earn you money yearly. 

These are just a couple examples to get you thinking outside the box. Yes, there is value in a 401(k), an IRA, or a Roth, but there is also value when you put your money to work elsewhere, too. 

I’m always delighted to have that conversation, especially if it’s about putting money to work in a more creative way that can pay off big time.

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm, so we can schedule a confidential consultation to explain options to permanently resolve your tax problem Make an appointment here!  Or, call Toll-free 1-855-254-1892.

Your New IRS Account

Do not forget you can securely access your IRS account information through your individual online account. #IRSaccess

Understanding the LLC?

Now, this is the second in a brief series I’m sharing to discuss the basic entity structure options business owners have. Given the shift to a “gig” based economy, many new business owners always seem to find themselves in tax trouble when they drive for Uber, or Door Dash, or even take on contract work. 

Enter the simple, basic LLC, or Limited Liability Corporation. 

It’s the go-to for new small businesses, and the costs for setting it up are almost always under $1,000, so the protections of a corporation (as well as the tax advantages) are within the grasp of anyone who is earning money. 

Depending on where you are geographically, though, yo0u might have more options than you can imagine. 

Single-Member LLC/Sole Proprietorship

General Partnership

Family Limited Partnerships

Series LLC

Restricted LLCs

 L3C Company

Anonymous LLC

Member-Managed LLC or Manager-Managed LLC

Now, some of these are specific to certain states. New Mexico, for example, currently has the only Anonymous LLC, but the key is that all these types do basically the same thing. They are all easily researched, and bear in mind, some will not be an option for you with your specific situation. 

Here’s the key takeaway, though: when you have your small business structured as an LLC, you have the “pass through” taxation, most sole proprietorships are used to coupled with the corporate protections you need. 

One thing that many business owners fail to consider is the fact that new business divisions – or even products – can be broken off into their own LLC to truly test and vet them. 

It might be more work, but if a new product or service is not aligned with your “usual” business, then separating it as an entity is an ingenious idea, especially if you think the new venture is one that might be sold or developed along a different route than your primary business. Sure, this can create a little more work for bookkeeping and tax preparation, but it can also give you valuable metrics and data about how your new entity is developing – and its actual profitability.

The beauty of having multiple LLCs in lieu of one “big” one is the obvious one – they represent separate business ventures you’re involved in and, should one be sued or in financial dire straits, it can be dealt with directly and “protect” the other entities.  Structured properly, even the simplest LLCs corporate veil can be protected, and that means protection for you as well as your other businesses.

None of this is to say that a single LLC is a terrible thing, but as your business dealings get more complex (and successful!), it’s an excellent idea to have multiple LLCs set up. The cost is negligible, the protection is protracted, and my team and I are pleased to advise you on – and assist you – in setting them up and making sure your taxes are easy to handle and understand. 

As always, feel free to reach out and schedule a call to learn how to get the LLC protection that makes sense for your business.

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm, so we can schedule a confidential consultation to explain options to permanently resolve your tax problem Make an appointment here!  Or, call Toll-free 1-855-254-1892.

A New Year of Taxpayers

 

Every year, it seems, old clients and friends reach out as their kids or grandkids are beginning their “journey” as taxpayers.  In reality, it’s the same conversation, but it’s always from the heart, and I wanted to share a few “nuggets” of wisdom here today.

Think of it as a summary of what I’d be telling you if you called to ask for your own granddaughter or your teenager…

First things first – when you take the job, take the time to ensure your listing your tax liability properly on your W4.  It might seem simple (and maybe it is to us, but we’ve all been doing this a lot longer than a kid with his first job), but since their employer can’t give them any answers, “our” kid is having to fill out a form that asks some misleading questions…

“Other income.” 

“Deductions.”

“Extra withholding.”

…And so on. 

Now, this ought to be pretty straightforward, but, before your child goes to fill out their new hire paperwork, take a moment to Google “W4” and look it over with them.  Answer their questions, point out a few things that don’t impact them now but might in the future, and so on. 

While this helps to ensure they have shared their tax and withholding information with their employer, once they begin to get paychecks, it’s never a bad idea to verify with them that the proper amount is being taken out in their checks.  Many, many times we’ve seen where supervisors make input errors with new hires and cause a tax problem for young people.  

When tax season rolls around, here’s where most “kids” struggle:  They don’t know what they did with their W2 or any other tax paperwork they should have held on to.  Today, obviously, this isn’t the challenge it once was, since many companies offer W2s digitally.  A new copy is only a few clicks away, but banking information, or, in the case of trust funds, college savings accounts, and other financial accounts, might not be so easy to track down. 

The biggest question we get, of course, is, “When to file,” and, while there are a lot of rationales for any answer, our experience for anyone filing for themselves and not using a tax professional for preparation is this:  as soon as possible!

I tell them this for two primary reasons:  first, they can beat the rush and, if they encounter any problems, they have time to sort out the proper solution  Second, they can get their refund sooner! 

Cash in hand is almost always preferable to waiting…

One thing that I don’t see a lot of parents and grandparents doing for those first refund checks is one of the most important:  Teaching those kids how to spend it properly.  Every year, the streets are filled with young people who have spent a refund check on rims, or a stereo, or clothes.  Teach them about putting money to work, not on consumer goods, but on purchases that have long-term value.  Sure, they should spend some of it – it’s theirs, after all – but learning financial discipline is a valuable thing that can’t be taught in school. 

Of course, if you have any questions, my team and I are ready to help.  Reach out if you need it!

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm so we can schedule a confidential consultation to explain options to permanently resolve your tax problem.  Make an appointment here!  Or, call Toll-free 1-855-254-1892.

Tax Preparer Fraud

Avoid “ghost” tax return preparers whose refusal to sign returns can cause a frightening array of problems. It is important to file a valid, accurate tax return because the taxpayer is ultimately responsible for it.

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm so we can schedule a confidential consultation to explain options to permanently resolve your tax problem.  Make an appointment here!  Or, call Toll-free 1-855-254-1892.

Is It Time To Rethink Your Business Structure?

 

This is the time of year many of my business clients begin thinking (or doubting) how they’ve defined their businesses. 

Should you be a “C” or an “S” corporation?

Should you evolve your LLC into a slightly different version of an LLC for tax or inheritance purposes? 

We get a LOT of these questions, and there’s often no simple answer for them, so this month, I want to take some time to go over some of the options – and try to share some of the tax benefits and liabilities of all of them.  Let’s start with the big ones – the C- and S-Corps and I’ll share some of the LLC information as the month goes along. 

From a strict definition point of view, the S-Corp is “a type of corporation that meets specific Internal Revenue Code requirements. The requirements give a corporation with 100 shareholders or less the benefit of incorporation while being taxed as a partnership. The corporation may pass income directly to shareholders and avoid double taxation.”

By contrast, a C-Corp is “a legal structure for a corporation in which the owners, or shareholders, are taxed separately from the entity. C corporations, the most prevalent of corporations, are also subject to corporate income taxation. The taxing of profits from the business is at both corporate and personal levels, creating a double taxation situation.”

Right away, you can see that the C-Corp has that scary term, “double taxation” – the truth is, the S-Corp is considered a “pass-through” entity, much like the LLCs that many small business owners are familiar with.  Yes, a C-Corp will “tax” you twice, but the benefit is the ability to grow exponentially and protect your individual assets holds a great deal of appeal to many companies – especially those that expect to be 7, 8, or 9 figure businesses in the future. 

The reality is, most business owners who are considering the shift to an S- or a C-Corp are likely better served with the S-Corp, but certain industries – like tech, some retail, or companies that are expecting to franchise quickly – might find the C-Corp designation better in the long run. 

Another handy tool that a lot of tax professionals might share with you is this:  if you aren’t doing over a million dollars a year in income, stick with an S-Corp. 

…And while I would love to talk to you about making that move, I also want you to be aware of the various options that the LLC offers, too.  As you’ll see in the coming emails this month, there are a lot of ways to define your LLC – and even set up the tax structures – that give you many of the benefits of the C- and S-Corporations without the hassle and expense. 

Remember, it’s a process, and one that is based on growing a business, not merely building it and hoping it will be the right one. 

See you soon!

IMPORTANT: Our firm specializes in tax resolution. We serve clients virtually so don't hesitate to reach out.  If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to our firm so we can schedule a confidential consultation to explain options to permanently resolve your tax problem.  Make an appointment here!  Or, call Toll-free 1-855-254-1892.