4 Ways Your LLC is Taxed
The limited liability company (LLC) is a hot business structure for startups right now for good reason. It offers all the personal-liability protection without the red tape, paperwork and formalities that can be burdensome for a startup, a small business or a solo entrepreneur.
After settling on the LLC as the legal structure, many small-business owners are surprised to learn they have to decide how to be taxed. This is a big decision, since taxes are probably one of the reasons you to choose this legal structure in the first place.
Because the LLC is an entity created by state statute (and not the federal government), it has flexibility for federal tax treatment. A single-member LLC can be taxed as a sole proprietorship or a corporation (either a C corporation or an S corporation). A multi-member LLC can be taxed as a partnership or a C corporation or an S corporation. Flexibility is a good thing, but you need to know which LLC option is right for you. Here are the four federal tax classifications available for the LLC.
Reasonable Salary for S Corporation Owners or Beware the IRS!
Besides its single level of taxation as a passthrough entity, an advantage of an S corporation over a C corporation is that a shareholder’s share of the corporation’s net income is not considered self-employment earnings and therefore is not subject to self-employment tax (13.3% in 2011 and 2012). This treatment is in contrast to that of a general partner, LLC member, or sole proprietor, for whom net earnings from self-employment include any trade or business income and a partner’s distributive share of income from a trade or business carried on by the partnership.
However, if the S corporation shareholder provides services to the S corporation, he or she must receive an adequate or reasonable amount of compensation for these services. Minimizing related payroll taxes provides an incentive to keep the S corporation shareholder’s wages low and to characterize most of the passthrough income as distributions.
The U.S. Government Accountability Office reported in 2009 on employment tax noncompliance among S corporation shareholders. The IRS has been pursuing this perceived abuse of inadequate compensation in favor of dividend distributions to shareholder-employees and has won a number of cases. This is THE single biggest area that the IRS is currently auditing.
The IRS is Targeting Smaller Businesses - Here's How to Fight Back
The IRS is focusing greater resources on small and medium businesses. However, it is important for these businesses to recognize what the large corporations already know – it often pays to fight the tax man. Why the IRS emphasis on small and medium businesses? A number of reasons – but two that stand out. First, Washington has rung the bell on the “tax gap” – that there are billions of dollars in uncollected taxes out there. Also, the IRS is going through a line change with a number of new examiners and auditors being brought on while at the same time a good number of older hands are retiring. The IRS is understandably not keen on having these new employees cut their teeth on the biggest companies.
How to Figure Out the Actual Cost of Your Employees
Hiring employees always seems to cost more than entrepreneurs and business owners expect. Besides the hourly wage or salary, there are mandatory taxes and benefits, paid time off, insurance, retirement and so much more that increases the amount you spend to bring on help. Knowing how much you spend for each employee will help you improve your business results.
Get Paid Faster by Using ACH
Getting paid used to be quite simple: cash or check were the basic forms of payment accepted by small businesses. How times have changed! Improvements in secure communications, new technologies, economic conditions and the competitive landscape have led to tremendous innovation in the most important part of any business transaction: getting paid. Let’s take a closer look at ACH, a cost-effective, innovative payment method.
Penalty Relief and Expanded Installment Agreements
The IRS has announced a major expansion of it's "Fresh Start" initiative to help struggling taxpayers. Certain taxpayes who have been unemployed for 30 days or longer will be able to avoid failure-to-pay penalties. In addition, the IRS is doubling the dollar threshold for taxpayers eligible for Installment Agreements to help more people qualify for the program.
5 Things The IRS Wants You to Know About Internet Scams
The Internal Revenue Service receives thousands of reports each year from taxpayers who receive suspicious emails, phone calls, faxes or notices claiming to be from the IRS. Many of these scams fraudulently use the IRS name or logo as a lure to make the communication appear more authentic and enticing. The goal of these scams known as phishing is to trick you into revealing your personal and financial information. The scammers can then use your information like your Social Security number, bank account or credit card numbers to commit identity theft or steal your money.
The IRS Wants Your QuickBooks FIle!
Tax practitioners have always been cautious with the records they provide to the IRS in an audit to control the depth of an IRS inquiry. But IRS agents are starting to request client backup files from small business accounting software such as QuickBooks and Peachtree, and many businesses are concerned about how much information the IRS is requesting and how it is using that information. In October 2010 the IRS announced it was expanding its audit capabilities by training agents to be proficient in QuickBooks and other accounting software and encouraged agents to start requesting electronic files from taxpayers.
This article explores the IRS’ legal authority and long-standing use of electronic records in audits and takes a closer look into how the IRS requests and uses electronic files. It offers tips for responding to IRS requests for small business accounting files and for adjusting bookkeeping practices to minimize undue IRS inquiry during a small business audit.
IRS Audit Red Flags
The chances of being audited or otherwise hearing from the IRS increase depending upon various factors, including your income level, whether you omitted income, the types of deductions or losses you claimed, the business in which you're engaged and whether you own foreign assets. Math errors may draw IRS inquiry, but they'll rarely lead to a full-blown exam. Although there's no sure way to avoid an IRS audit, you should be aware of red flags that could increase your chances of drawing unwanted attention from the IRS.
9 Traits of a Great Small Business
What constitutes a great small business? We all know what a great small business looks like - it makes a tidy profit, is run efficiently, and grows slowly but surely. But a great small business, what is that? A great small business shares most or all of these traits.
2012 Tax Law Changes
Congress passed the Tax Relief Act, Unemployment, Insurance Reauthorization, and Job Creations Act of 2010 ("Tax Relief Act") which was singed into law December 17, 2010 to extend a large number or expired or expiring provisions of the tax law to 2011 or 2012. The new law changes much of what and how you report for the 2011 and 2012 tax years.
How to Handle Independent Contractors in Quickbooks
Set up Quickbooks to track all of your 1099-related payments
Payroll Cuts Extended
The Temporary Payroll Tax Cut Continuation Act of 2011 extends the 2010 payroll tax cuts
Year End Tax Planning Strategies
Capital gains and dividends strategies, timing income and deductions, charitable contribution ideas
Health Savings Accounts
This issue addresses Health Savings Accounts - The hot new tax deduction!
IRS Hot Audit Areas
This issue summarizes the dramatic increase in IRS audit activity.
Your Home
This newsletter discusses reducing your mortgage debt, deducting a vacation home, and excluding gains on sale of your home.
Succeeding in Business
How To Succeed in Business by Really Trying
Stock Market Investing
Understanding Stock Market Ups & Downs... Three Ways to Achieve Peace of Mind While Maximizing Your Returns
Credit Scores
How To Raise Credit Scores
Overtime Compensation
Overtime Compensation Under The Fair Labor Standards Act
E-Commerce
Best Practices for E-Commerce Self-Defense
Tax Planning At Year-End and the New Year
At year-end there is always an opportunity for you to benefit from some last minute planning. Plus, the beginning of a new year gives you a good chance to do some advance planning.
Are Health Savings Accounts Healthy for You and Your Employer?
Federal legislation has opened the door to tax-free medical care for anyone that can enroll in a High Deductible Health Plan (HDHP) and deposit tax deductible dollars in a Health Savings Account (HSA).
Tax Breaks For Hurricane Victims
While most people are watching relief efforts following hurricanes Katrina, Rita, and Wilma on TV, we have been monitoring all the tax breaks offered by the federal government for individuals and businesses affected by the tragedy.
Will the AMT Hit You?
The Alternative Minimum Tax, AMT for short, was enacted to ensure that wealthy individuals could not entirely escape taxation by using every legal tax break available. Today, the AMT is becoming a tax trap for the middle class.
Check Your Tax Refund All Tax Season Long
There is a very helpful feature on this online office that will help you this tax season.
Excluding Gain on Sale of Personal Residence ? Special issues
How do you account for gain from the sale of your residence if you have used part of it for business? What if you own a home with someone to whom you are not married? Can you exclude gain from the sale of land on the lot your residence occupies?
Earn College Credits and Tax Credits at the Same Time
The Hope Scholarship Credit, Lifetime Learning Credit, and other key considerations need not be a mystery.
Assessed A Penalty? Request Abatement!
Getting relief from an IRS penalty MAY be possible.
Buy-sell Agreements Can Be Integral to Planning the Succession of Your Business.
Here are some crucial details about Buy-sell agreements you cannot afford to ignore.
What's the "Right Amount" of Compensation for an S Corporation Shareholder/Employee?
The S corporation has been used by small business owners to avoid payroll taxes, and the IRS knows it. Here is a case that describes how a CPA got into trouble with his own S corporation--and how you can avoid the mistakes that were made.
Dangers in Shareholder Loans Continue
Loans between shareholders and closely held corporations are subject to special tax scrutiny and, if not properly documented, can produce adverse tax results.
IRS Approves Self-Directed Medical Plan.
The IRS has approved an important self-directed medical benefit plan that both employers and employees should know about.
Sharing Your Stock Market Losses With Uncle Sam
Uncle Sam is always happy to tax you when you make money. But what happens to your tax situation when you experience losses? Not every investment will be a winner, so learning how to take advantage of the tax treatment of capital losses can be helpful.
Good Reasons to File a Gift Tax Return
Filing a gift tax return can work in your favor.
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