C Corporation

A C corporation is independent of its owner(s), or shareholder(s).

Formation
To form this type of business entity, one must register the business as a corporation with the Secretary of State office by filing articles of incorporation. One must also formally file a trade name, unless the business operates under the registered name. Generally, a corporate designation (Corporation, Incorporated) must be included at the end of the business name. Lastly, a tax ID number and the appropriate business licenses and permits need to be obtained.

Liability
Because a C corporation is independent of the shareholder(s), the corporation is held liable for the debts and obligations of the business. This means that the assets belonging to the owner(s) of the company are protected. The owner(s) is only accountable for their investment in stock of the company. However, this protection from business liabilities may be lost if the owner(s) comingles personal and business finances.

Taxation
A C corporation pays income tax on profits from the business using Form 1120, U.S. Corporation Income Tax Return. The owner(s) of a C corporation pays taxes on dividends and additional profits received on his/her personal tax return. This is considered double taxation.

Fees and Forms
A C corporation is costly and may require a great deal of time to form. This type of business entity is highly regulated which means a large amount of paperwork, recordkeeping, and legal fees will be incurred. 

Investment Needs
With a C corporation, funds can be raised through the sale of stock and has the ability to “go public” through an initial public offering (IPO).

Operational Continuity
The business does not dissolve upon the death or retirement of an owner.

For information on changing your business structure, see Changing Your Business Structure.

DISCLAIMER:  All information on this post is the opinion of the author and is not offered as legal advice.  Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information.  This firm offers valuable professional tax advice only as part of prepaid engagements.

Partnership

In a partnership two or more people share ownership of the business.

Formation
To form a partnership the owners generally register the business with the state.  They must also formally file a trade name, unless the business operates under the registered name. Lastly, they need to obtain a tax ID number and the appropriate business licenses and permits.

Liability
The owners of a partnership are personally liable for all debts and obligations of the business. In addition, each partner is liable for the decisions made by the other partner(s). This means that the owner(s) personal assets may be seized to satisfy business debt. In a general partnership these liabilities and obligations are divided equally among the partners unless otherwise agreed upon. In a limited partnership, the liability, as well as management decisions, is restricted for the chosen partner(s) and is based on investment percentages.

Taxation
The annual income, deductions, gains, and losses of the business are filed on Form 1065, U.S. Return of Partnership Income. Any profits/losses are then passed through to the partners via Schedule K-1’s. Each partner pays taxes on their share of the income on their personal income tax return. The owners may also be required to pay self-employment taxes and/or estimated taxes. 

Fees and Forms
A partnership is generally easy and inexpensive to form. There are no fees and forms required for operating a business as a partnership. However, it is highly recommended that a legal partnership agreement is documented. Without documentation of important arrangements such as how decisions will be made, how profits will be divided, and how to change ownership, business relationships may be strained and put in jeopardy.

Investment Needs
The funding of a partnership is often limited to the personal assets of the owners and loans.

Operational Continuity
The business does not necessarily dissolve upon the death or retirement of an owner. The partnership may continue on with the existing partners (so long as there are two or more) or may bring in additional partners, depending on the partnership agreement.

For information on changing your business structure, see Changing Your Business Structure.

DISCLAIMER:  All information on this post is the opinion of the author and is not offered as legal advice.  Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information.  This firm offers valuable professional tax advice only as part of prepaid engagements.

Sole Proprietorship

A sole proprietorship is the most common business structure used. This form of business organization is owned and managed by one person.

Formation
To form a sole proprietorship one typically must formally file a trade name (unless they operate under their personal name) and require the appropriate business licenses and permits.

Liability
The owner of a sole proprietorship is personally liable for all debts and obligations of the business. This means that the owner’s personal assets may be seized to satisfy business debt.

Taxation
The business taxes are filed on the personal income tax return of the owner via a Schedule C, Profit or Loss from Business. Although this occurs, it is very important that the owner does not comingle personal and business finances. The owner may also be required to pay self-employment tax and/or estimated tax.

Fees and Forms
A sole proprietorship is generally the most affordable and straightforward business organization. There are no fees and forms required for operating a business as a sole proprietorship.

Investment Needs
The funding of a sole proprietorship is often limited to the personal assets of the owner and loans. Due to the instability of sole proprietorships, investors are not usually attracted to them.

Operational Continuity
The business is dissolved upon death or retirement of the owner.

For information about changing your business structure, see Changing Your Business Structure.

DISCLAIMER:  All information on this post is the opinion of the author and is not offered as legal advice.  Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information.  This firm offers valuable professional tax advice only as part of prepaid engagements.

Five Tax Tips for Recently Married Taxpayers

With a few of my friends getting married this summer, I thought this was a timely tax planning piece of advise to share. Please pass it along to anyone you know getting married or recently married.

These five important task will save time later and take some of the stress out of tax preparation later.

1. Notify the Social Security Administration – Report any name change to the Social Security Administration, so your name and Social Security Number will match when you file your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security Card, at your local SSA office. You can order the form over the phone by calling 800-772-1213 or download it with this link.
2. Notify the IRS – If you have a new address you should notify the IRS by sending Form 8822, Change of Address. This form can be ordered by phone if unable to download by calling 800-829-3676.
3. Notify the U.S.Postal Service – You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence.
4. Notify Your Employer – Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
5. Check Your Withholding – If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will even provide you with a new Form W-4, Employee’s Withholding Allowance Certificate, you can print out and give to your employer so they can withhold the correct amoutn from your pay.

Changing Your Business Structure

Are you thinking about changing your business structure? If not, you might want to check and see if a different structure would be better for you. As your company grows, your needs begin to change and an alternate form of business organization might be more appropriate.

Before you make any changes, understanding all of the pros and cons is necessary. The structure that you choose determines many things about how you run your company. For instance, you may need to file more regulatory paperwork.

The five major differences you should assess are:

1. Liability – Determine how much liability you are willing to personally assume for your business.
2. Taxation – Determine how you want to pay your business taxes: as part of your personal income taxes, as a separate entity, or both.
3. Fees and Forms – Determine how much time and money you want to put into setting up the new structure, keeping the necessary records, and processing filings.
4. Investment Needs – Determine the amount of money that your company will need and the means you would like to use to acquire it.
5. Operational Continuity – Determine what you want to happen to your business after death or retirement.

After thoroughly reviewing your needs and options, there are four steps to making the change:

1. Register your business with local and state agencies. Depending on the structure you are choosing, you may need to file a fictitious name registration form or articles of incorporation.
2. Register your business with the IRS by applying for a new Employer Identification Number (EIN).
3. Reapply your business for any licenses that are required for your field.
4. Notify everyone that you do business with if the change affects them. Especially banks and insurance companies.

Be sure to keep in close contact with your accountant after making the changes. They will be able to help you through any new processes you will need to undertake and keep you within the legal limits.

If you would like to know more about the different business structures, keep watching our blog or sign up to receive our blogs in your email. I will be posting about a different structure each Wednesday. 

DISCLAIMER:  All information on this post is the opinion of the author and is not offered as legal advice.  Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information.  This firm offers valuable professional tax advice only as part of prepaid engagements.

Networking Solutions for Trusted Advisors

Thursday, July 15, 2010

11:45am – 1:00pm

The Women’s Initiative Network wishes to invite members and guests to:

  ”Who Trusts You? How to Build Trusting and Lasting Relationships.”

presented by The Trio to Inspire Change

During this informative session you will learn: 

•  How to leverage online communications to earn trust that can result in less marketing and more clients
•  How to take the mystery out of networking and be more effective
•  How to build special relationships with trust based client and customer relationships

The Fairways

1500 Rogwin Circle SW

North Canton, OH 44720

To register or for more information, please contact Marie Cutlip at 330-494-5335.

Who Trusts You? How to Build Trusting and Lasting Relationships

Wednesday, June 9, 2010

1:00pm – 3:00pm

The Jackson-Belden Chamber of Commerce’s P.E.A.K. committee wishes to invite all Chamber members to:

  ”Who Trusts You? How to Build Trusting and Lasting Relationships.”

presented by The Trio to Inspire Change

During this informative session you will learn: 

•  How to leverage online communications to earn trust that can result in less marketing and more clients
•  How to take the mystery out of networking and be more effective
•  How to build special relationships with trust based client and customer relationships

      Jackson Township Hall

      5735 Wales Ave NW

      Jackson Township, OH 44646-9097

Make your reservations for this free event online at http://www.jbcc.org/ or by email to kwebster@jbcc.org. For more information on this or any other PEAK presentation, please contact the chamber office at (330) 833-4400.

Four More Reasons to Enlist an Accountant

Most business owners start companies because they enjoy the core of their business, not because they want to do the bookkeeping for it. So, as an owner, why not focus more on what you like to do for your company and leave the rest to professionals? Besides bookkeeping, here are four more reasons you should enlist an accountant:

Cash Flow

Cash flow is an analysis of the money going in and coming out of your company. It is what keeps your business alive. If you neglect to monitor it, you could risk losing it all. An accountant can help you keep an eye on cash flow, provide you with strategies to improve it, and show you how to address issues that occur. If you decide to take this task on without professional assistance, you should definitely read this booklet created by the U.S. Small Business Administration.

Theft Protection

If you have employees who handle the accounting in-house, would you be able to tell if someone was stealing from your company or committing fraud? Without the proper internal controls, this could be happening right under your nose with little effort. An accountant can design your internal controls to help detect these problems or to eliminate them completely. They can also do monthly check-ups to look for anything unusual that may be a sign of theft.

Financing

If you need to obtain additional funds for your company, at minimum you will be required to provide financial statements. Often projections and business plans are requested as well. A good accountant can not only help you with these requirements, they can refer you to lendors and investors that they have relationships with.

Taxes

Taxes are complicated and it seems that the government plans on keeping it that way. Every year they make new deductions and take away old ones. It can all be very confusing and hard to keep track of, but that is why you have an accountant, right? Accountants have a wide variety of sources to pull information from and are always being updated with the latest and greatest tax elections. They can utilize their resources to help you maximize your deductions and avoid setting off any “red flags” which might cause an audit. Many people only think about their accountant in March and April, but you should consult them year around. Remember, the actions you take during the year are what determine your tax return, not what you do solely during tax season!

Bookeeping, cash flow, theft protection, financing and taxes…accountants can take care of all of that and more. Are you ready to hire a professional and allow yourself to do what you love?

DISCLAIMER:  All information on this post is the opinion of the author and is not offered as legal advice.  Please consult the appropriate authoritative laws, codes, rulings, cases, etc. for the most accurate and timely information.  This firm offers valuable professional tax advice only as part of prepaid engagements.

The IRS Targets Independent Contractors

The government is taking a closer look at companies that use contactors. They’re also trying to revamp the definition of a freelancer. To read more, click here.

Tax Return Record-Keeping Tips

It’s time to take a sigh of relief: your taxes have been completed and the tax refund has been received. As you relax and begin to contemplate what the spring and summer may bring (vacations at the beach, lemonade on the patio), you realize the first chore to complete is spring cleaning. But hold on, before you start throwing out your tax return records take a look over the following Frequently Asked Questions:

Q. Why would I need to keep tax return records?

A. These documents are critical if your return is selected to be audited by the IRS, State or Local taxing authorities.

Q. What records are important to keep?

A.   Specific records that should be kept include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment and any other record that support deductions and credits you claimed on your tax return.

Q. How long should tax return records be kept?

A. Tax return records should be maintained forever since the burden of proof falls on the taxpayer to prove that a tax return has been filed and you need that proof in case the IRS claims you as a “non-filer”. Records specifically relating to stock purchases, home purchase/sale, retirement and business or rental property should be kept forever as well.

Q. Where can I get more information about tax record keeping?

A. For more information on what kind of records should be kept, see IRS Publication 552, Recordkeeping for individuals (http://www.irs.gov/pub/irs-pdf/p552.pdf)