Taxation & Regulation

25

May'18

How do I find the Right CPA?

Finding the right CPA or the right accountant is really important. Important because the results depend upon who you get, and it’s an area where you, the client may not be aware of whether you got the best advice or not. There are a lot of stuffy accountants (CPAs) out there who have very high opinions of themselves. They talk about “the firm” and act like they are something special. They tend to be rigid, unimaginative, high priced and advocate for themselves. There are also a lot of very friendly nice guys who are not very competent. They talk a good spiel, but they have neither the resources nor the experience to handle your problem. So how do you find the right CPA? What are you looking for? Lets see: 1. A hard-bitten no nonsense negotiator who can deal with the IRS at their level, knows all the audit tricks, has been there many times, a street fighter. 2. A clever innovative thinker who knows all the ins and outs of the law, understands the difference between light gray and dark gray, wants to take you to the limit of tax savings, but without crossing the line. 3. A plugger, …

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21

Apr'18

What’s the Difference Between a LLC and a S Corp?

There are many differences between a LLC and a S Corp, even though at first glance they appear to be essentially the same. First, let’s tackle the issue of forming a LLC versus a corporation, in general. The LLC is generally a lot easier to form. Usually it only requires registration from the state. To make things formal, you should have what’s known as an operating agreement amongst the owners. That’s it. With a corporation, you also have to register with the state, but you have a lot of busy work to do. You have to adopt a charter, adopt bylaws, appoint a board of directors, pass resolutions, etc. Both a LLC and a Corporation will most probably have to do annual filings with the secretary of the state in which they are formed. Some states, like Missouri do not require that for a LLC. Now, what is the difference between a LLC and a S Corp? Easy. The S corp has one set of rules for its taxation. Very rigid rules. Very mechanical in application. Some of the other respondents have pointed out that S corps must pay their owner/officers reasonable compensation. The balance of the income can be …

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08

Mar'17

How Much Can I Deduct for Auto Expenses in My Business?

How many cars can you deduct: as many as you use in the business. How much? You deduct the “business use portion” only, computed by taking the business miles driven in a year divided by the total miles driven in that year. You can’t guess or take a wild average you pull out of your hat, either. The law requires contemporaneous records. That means you keep an auto log for each vehicle. What do you deduct? The costs of owning and operating the vehicle, including things like gasoline, oil, repairs, tires, car washes, registration, taxes, lease expense, interest paid, licenses and depreciation. But here’s the hard part: you have to know what those expenses are by vehicle! You can’t just take a wild guess, you have to have records (and receipts, proof), by vehicle! That’s what gets most people in trouble. Does the car have to be used over 50% for business?  If you use the car over 50%, you can take special, accelerated depreciation deductions. Under 50% you are limited to the old fashion straight-line depreciation. Again, only for the business use portion. Drive 10,000 miles and only have 1000 provable business miles, you get 10% of all costs, …

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25

Feb'17

Is a S-Corp the Best Choice for a Real Estate Company?

Question:  I have a real estate development company.  I was told to form a S-Corp. Is this right? Response: Who told you a S-Corp was better for anything? I would suggest exactly the opposite. You NEVER want to have real estate in ANY corporation. EVER. NEVER. PERIOD. A LLC gives you the option to select the method of taxation that is best for your particular situation. OK, so let’s say you decide that for some quirk of fate that S Corp taxation is better than any other method. You can elect to be taxed under S-Corp rules. LLC’s are typically taxed as partnerships if there is more than one owner, and a disregarded entity if only one owner. Many tax preparers and attorneys love S-Corps. They think that they can pull a fast one on the IRS. Let’s say the company earns net income of $ 150,000. If you are a sole proprietor (not incorporated), the entire amount is subject to self employment tax, as well as income tax. But what if you were a S-Corp, and you took a salary of $ 50,000. How would that be taxed? Only the salary would be subject to self employment tax. (the entire …

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05

Feb'17

What’s the Best Free or Low Cost Do-it-yourself Tax Software for an Entrepreneur?

There isn’t one. If you are self employed and you think you should be doing your own taxes, acting as your own accountant, I have only one piece of advice: don’t. Instead of chasing down some “free” software to save yourself a few nickels, you ought to be going to see a CPA or EA. If you can’t save double what it will cost you, then I’ll eat my hat. I am as frugal as they come. After all, doesn’t CPA stand for cheapest person around? But the most frugal people always understand that you can sometimes save a dime and lose $ 10 in the transaction. This is one of those situations. People who are self employed should spend their time at what they are best at. Unless you are a CPA or EA, you ought to be devoting your time to what has the most return for the time invested. I can assure you that spending 40 hours a year keeping up with tax code, then fiddling with all your own parts is just not time or cost effective. Don’t even try to convince me that you know the code as well as a well trained CPA specializing …

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26

Jan'17

Employee or Independent Contractor

Question:  A gig I had last year was assumed to be under the table. The company now (Jan.) requested my tax info. What percent will I owe and is this legal? “Assumed to be under the table?” Under the table is illegal, and if you know it. What you have proved is that there is no honor amongst thieves. The company had a “come to reality” session with its accountant, and now they are trying to make it all pretty. So, what can you do? Precious little, other than provide the information to them. However, instead of sending them a W-9 form, which they probably requested, I would send them a W-4 form, all nicely filled in. Why? Well, if we are going to make pretty, let’s do it the right way. The chances are you technically should have been engaged as an employee, not an independent contractor. W-4’s are for employees. Be sure you keep a copy of the form. Now, they will probably send you a 1099 anyway. So what you do is file a form SS-8, and ask the IRS, was I an employee or an independent contractor? Chances are pretty good IRS will say “Employee!” This …

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02

Jan'17

Is a Delaware C-corp right for our start up? How many shares of stock should we issue and at what value? How many for co-founders?

So I am going to throw cold water on this whole idea. Why would you want to have a C-Corp for a start up? ( I know the answer you are all thinking: to get funding, the VC’s want a C Corp so they can take it public). STOP. So you are going to run your life by the Inc. Magazine playbook? Let’s reiterate what that “playbook” looks like: young energetic entrepreneurs start a company, they incorporate in Delaware, get VC funding, then take their company public and everybody rides into the sunset in their Teslas with megabucks. That is a stylized cartoon view of reality. It is promoted by the media and Inc Magazine in particular. It’s not what really happens in real life to most entrepreneurs. The narrative is a fairy tale. Consultants, lawyers and the like buy into this stylized narrative because it means they can fleece their clients for big bucks now and keep them dazzled by the golden rainbow ahead of them. STOP. First off, you need to think about taxes. A C-Corp is the worst structure for that. It locks up all the early losses in the Corp, with no flow through to the …

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26

Sep'16

How do you handle income taxes for multiple states?

Question:  I own a single-member LLC in “state a”. I am opening a new office in “state b”. My understanding is I need to file a foreign llc in “state b”. I need help understanding the tax implications of this. How are state taxes handled? Answer: I’m going to simplify the answer to this question, because it’s really not that difficult. A single member LLC is a disregarded entity. That means that the P&L is reported on your individual tax return, on a schedule C, just like you were a sole proprietor. This makes the federal tax reporting very simple. So, what do we do with the states? The issue of a “foreign entity” from a state standpoint means only that you have a LLC which was formed in another state. From a LLC standpoint, it means you have to register the LLC and perhaps pay a registration fee to the State. Usually these have nothing to do with the income earned by the LLC. ( A notable exception is California, which assesses a minimum $ 800 tax and then tops it with a percentage of gross sales tax, which wacko as it is, is separate from income taxes per …

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23

Sep'16

What are the Advantages of a Sole Proprietorship?

Sole proprietorships have the advantage of being easy to form, easy to dissolve, and easy to figure and pay taxes on. When you have a sole proprietorship, you don’t have a separate entity for the business: you are the business. You file a Schedule C with your tax form and that’s it. You will, however, be taxed on all the income at your regular tax rate, and you will have to pay social security (self employment) tax at about 15% on the first $ 119K of income. You also have the disadvantage of being personally liable for everything that may go wrong in the business. There’s no liability protection. Additionally, if you don’t have employees, you won’t have a separate Federal Tax ID number, and you may have to give your social security number to many customers who are required to get a tax ID number so they can issue 1099’s to you. Let me suggest that a better arrangement: form a Single Member LLC. It will be taxed in the same fashion as a sole proprietorship, but you will gain many advantages: (1) you will have a separate Fed tax ID number you can give to those who require …

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22

Sep'16

Keeping Records for a Micro Business

Question: I freelance and make a lot of money, all in cash. I want to be legitimate. What should I do? Do I need to start a business? Incorporate? Answer: Many people make money “all cash” — it’s not that unusual. To make it legitimate, well, it is legitimate, since you are earning it lawfully. You don’t need to “start” a business… you already have one! So the issue is not one of having to come out from the shadows or somehow make what you are doing legal… it’s already OK. What you do have to do is do the things that a good business owner should always do. That includes these things: Keep a record of who pays you and for what. A simple log book or even a calendar would do. You should open an account which is only used for the business. It does not have to be a business account per se. Just a separate account. Banks will try to sell you some expensive business account. No thank you. A free personal checking account will do just fine. Deposit all the cash you receive, intact, on a daily basis. Don’t take some of it for personal …

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