In our book “Empower Your Business to Reach Its Full Potential, Your Road Map to Planning and Executing a Successful Business”, we discuss the challenges and pitfalls entrepreneurs face when they attempt to start their own business without consulting with experienced professionals.
Those who believe that they can read a few articles on the Internet and become proficient enough to decide for themselves what type of business entity to choose are being penny wise/dollar foolish. Choosing the wrong entity can be very costly in terms of tax dollars, cash outlays, and time. Heck, we have even seen accountants and attorneys give incorrect advice regarding choosing whether to be a C Corporation, S Corporation, general partnership, limited partnership, limited liability company (LLC), or sole proprietorship.
Some of these legal entities require that W-2 compensation be paid to the owner/employee; some forbid W-2 compensation being paid. One of these legal entities requires that a “reasonable salary” be paid. One of these entities could potentially save you thousands in self-employment taxes. Some partners pay self-employment taxes; other partners need not.
Whereas corporations require annual pro-rata distributions to its shareholders; partnerships allow annual disproportionate distributions (although a final accounting is required).
The company will need to decide to elect to be on the cash or accrual basis. The accrual basis is required by some taxpayers, but not by all. Which election is the most advantageous to your business?
Then there is a myriad of IRS rules regarding substantiating tax deductions to avoid unpleasant surprises (assessments) when audited, tax elections that should be made to reduce taxes, local gross receipts taxes, licenses, sales and use tax compliance, estimated tax payments, and the list goes on.
What happens if you file tax returns late or fail to timely remit taxes? There are costly interest and penalty assessments, and the latter are not tax deductible.
Make a smart choice and engage a business attorney and experienced tax professional. You will save much time and anguish, and in the end, the professional fees will be less costly then correcting your mistakes or failure to take action.
If you want to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, including how to adopt an age-weighted profit-sharing plan, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
