Question: Can I deduct a home office?

Answer: If you run a business from home, you may be entitled to a home office deduction. Your business space doesn't have to take up an entire room, but you have to use that space exclusively for business purposes.

You must also meet at least one of the following conditions:

Caution: Taking the home office deduction will limit the tax-free gain on the future sale of your home.

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Question: What is the nanny tax?

Answer: The nanny tax is nothing more than three federal employment taxes (social security, Medicare, and federal unemployment tax) that employers must pay if the wages of certain household workers exceeds a threshold amount.

The nanny tax only applies to your employees. A worker is generally considered to be your employee if you directly supervise the work and you supply the tools or supplies necessary to do the job. If your worker came from an agency or runs his or her own business, the nanny tax may not apply. Employees can include baby sitters, nannies, housekeepers, gardeners, health aides, and other household workers.

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Question: Should my corporation own our business building or should I own it personally?

Answer: If your business is incorporated, it is often a good idea to personally own the real estate occupied by your corporation.

If appreciated real estate is sold by a regular corporation, the gain will be subject to double taxation if the corporation distributes the money to you. However, if you own the real estate personally, there is no double taxation. Though the double taxation does not apply to S corporations, there can be problems when an S corporation sells its operating business and its real estate.

If you personally own the property, you can lease it to the corporation. Because of the depreciation, you may well generate a tax loss on your personal return.

There are no tax advantages of personal ownership of business real estate as well. See us and your attorney before you buy business real estate or change the form of ownership on real estate you already have to discuss the facts in your situation

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Question: How long should I keep my tax records?

Answer: Just how long to keep your records is a matter of judgment and a combination of state and federal statutes of limitation. The IRS can audit your return for up to three years after you file a return. However, if you omit more than 25% of your income from a return, that period increases to six years. To be safe, keep tax records for seven years after the filing date.

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Question: What is the best way to assemble records for you to prepare my tax return?

Answer: First, don’t wait until the last minute to sort through your records. Set up a filing system early in the year and stay on top of your filing.

Second, realize that there's not one particular system that works for everyone. If you use a tax organizer, you may want to set up your files in the same order, so you can easily locate the items you'll need to complete it. Otherwise, you might want to use last year’s return as a guide, and organize your files in the same order they were reported on your prior-year income tax return.

Third, when you receive important tax documents, such as your W-2, 1099s, mortgage interest statements, retirement account statements, etc., verify that the information is accurate before filing the documents with your other records.

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Question: What records do I need to keep for my business travel?

Answer: You need to keep receipts that support all your business travel expenses. For meal and entertainment expenses, you'll also need to keep a record of the person you met with or entertained and the business purpose of that meeting.

If the primary purpose of a trip is business, you can deduct your travel and all business-related expenses, even though you enjoy a few personal days during your trip. Make sure you carefully document the way your time was spent to support your business deduction. You can't deduct personal expenses.

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Question: What is backup withholding?

Answer: Banks and other businesses that pay you interest, dividends, rent, or for services you render as an independent contractor may be required to withhold income taxes from the checks they give you. The backup withholding rate is 28% for 2007.

You will be subject to backup withholding if: Back to top

Question: Who has to make estimated tax payments?

Answer: If you have income from which no income tax is withheld (such as business income), you may be required to make quarterly estimated tax payments. Also, if you don't have enough income taxes withheld from wages and pensions to cover your tax liability, you may need to make estimated tax payments.

Federal estimated taxes for individuals are paid with Form 1040-ES and are due on April 15, June 15, September 15 of the tax year involved and on January 15 of the following year.

If this is your first year with self-employment income or increased interest and dividend income, review your requirements for quarterly estimates to avoid being penalized by the IRS.

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Question: What is a capital gain?

Answer: A capital gain is what results when you sell certain property at a profit. In general, everything you own for personal or investment purposes is a capital asset, including your home, stocks, bonds, and collectibles. Capital assets do not include business property, such as inventories, notes, and accounts receivable.

Long-term capital gains (generally gains on assets held more than one year) receive more favorable tax treatment than ordinary income. For example, the maximum long-term capital gain rate is currently 15%, whereas the maximum ordinary income tax rate is much higher.

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Corporations - Why Incorporate?

• Liability Protection: Properly forming and maintaining a corporation will provide personal liability protection to the owners or shareholders of the corporation for any debt or liability incurred by the business. Personal liability of the shareholders is normally limited to the amount of money invested in the corporation.
• Tax Advantages: Another important benefit is that a corporation can be structured many ways to provide substantial tax savings. You can minimize self-employment taxes and increase the number of allowable deductions lowering the taxes you pay on the income of the business. Many corporations structure retirement and tax deferred savings plans for their owners and employees which can provide even greater tax savings.
• Raising Capital: Sale of stock for the purposes of raising capital is often more attractive to investors than other forms of equity sales. A corporation can also issue Corporate Bonds to raise capital for expenditures without compromising the ownership of the business.

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What is a corporation?

A corporation is a legal entity that exists separately from its owners. Creation of a corporation occurs when properly completed articles of incorporation are filed with the correct state authority, and all fees are paid.

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What is the difference between an "S" corporation and a "C" corporation?

All corporations start as "C" corporations and are required to pay income tax on taxable income generated by the corporation. A C corporation becomes a S corporation by completing and filing federal form 2553 with the IRS. An S corporation's net income or loss is "passed-through" to the shareholders and are included in their personal tax returns. Because income is NOT taxed at the corporate level, there is no double taxation as with C corporations. Sub-chapter S corporations, as they are also called, are restricted to having fewer than 100 shareholders, who must be individuals (S Corps cannot be owned by other corps) who are not nonresident aliens.

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Do I need an attorney to incorporate?

No! Having an attorney is not a legal requirement to incorporate, except in South Carolina (a signature by a SC attorney is required on articles of incorporation).

If you are unsure of what steps your business should take and you don't have the time to research the mater yourself, even the cost of one hour's consultation can pay off handsomely later. Just remember to bring lots of questions.

Once you have decided, we can form your corporation and save you money.

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How do I know if my name is available?

We will request your two top name choices. We will check these as part of your order. If neither of these is available, we will contact you for other name choices.

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How do I name my corporation?

First, we recommend that you spend some time coming up with a name for your corporation. Although each state has different rules concerning the naming of your corporation, the most common rule is that it must not be deceptively similar to another already formed company. The corporate name must include a suffix. Some examples are "Incorporated", "Inc.", "Company", and "Corp." However, your state may have different suffix requirements.

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What are the benefits of incorporating?

The primary advantage of incorporating is to limit your liability to the assets of the corporation only. Usually, shareholders are not liable for the debts or obligations of the corporation. So if your corporation defaults on a loan, unless you haven't personally signed for it, your personal assets won't be in jeopardy. This is not the case with a sole proprietorship or partnership. Corporations also offer many tax advantages that are not available to sole proprietors.

Some other advantages include:

• A corporation's life is unlimited and is not dependent upon its members. If an owner dies or wishes to sell their interest, the corporation will continue to exist and do business.
• Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation.
• Ownership of a corporation is easily transferable.
• Capital can be raised more easily through the sale of stock.
• A corporation possesses centralized management.

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What is a Registered Agent?

Most every state requires that a corporation have a registered agent. That agent must have a physical location in the formation state. The registered agent can typically be any person (usually a resident of the state) or any properly registered company who is available during normal business hours to receive official state documents or service of process (lawsuit).

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How many Directors/Shareholders do I need?

Most states allow for one person to act as shareholder, director, and all officer roles.

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How many shares of stock should I choose, and at what par value?

We provide a default of 200 shares, although you can choose any amount you want on all orders. Your par value is not requested on all orders, and is usually expressed as "No Par Value" or some dollar amount per share such as "$1.00" or "$0.10." Some states require that you do not issue your stock for less than the par value. Some states also base their fees on the number of shares authorized, multiplied by the par value.

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What is a Federal Tax Identification Number or EIN?

Your corporation is required to have an Employer Identification Number (EIN) also known as your Federal Tax Identification Number so that the IRS can track payroll and income taxes paid by the corporation. But, like a social security number, an EIN is used for most everything the business does. Your bank will require an EIN to open your corporate bank account.

We provide two EIN services:

Basic EIN Service - We prepare and email your SS4 (EIN application) & easy one-page instructions for obtaining your EIN. You need only review, sign and fax or call in the information to the IRS to get your EIN. Full EIN Service - We actually obtain your company's EIN for you.

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What do I need to do AFTER I incorporate?

You must have your initial shareholder(s) meeting to elect your director(s), if your director(s) haven't been designated in the articles. Then, you must have your initial organizational meeting of your directors. At this meeting, you will need to elect your officers, adopt your company's bylaws, and issue your stock (among other actions).

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How do I get started?

Once you have decided on a name, contact us to begin the process, once we receive your deposit, we verify the availability of your name choices, and draft your articles. Once your paperwork is complete, we will contact you for a final appointment where we will sit down with you and go over all the documentation. We will show you how to keep & complete corporate records; including (but not limited to): 1st Meeting Minutes where you will elect your Director; followed by you organizational meeting of Directors, adopt company bylaws (operational agreement), stock issue, ect. When you leave our office, you will be a fully executed Corporation.

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LLC

• Limited Personal Liability
• Like shareholders of a corporation, all LLC owners are protected from personal liability for business debts and claims. This means that if the business itself can't pay a creditor -- such as a supplier, a lender, or a landlord -- the creditor cannot legally come after any LLC member's house, car, or other personal possessions. Because only LLC assets are used to pay off business debts, LLC owners stand to lose only the money that they've invested in the LLC. This feature is often called "limited liability."
• While LLC owners enjoy limited personal liability for many of their business transactions, it is important to realize that this protection is not absolute. See Exceptions to Limited Liability.

LLC Taxes
Unlike a corporation, an LLC is not considered separate from its owners for tax purposes. Instead, it is what the IRS calls a "pass-through entity," like a partnership or sole proprietorship. This means that business income passes through the business to the LLC members, who report their share of profits -- or losses -- on their individual income tax returns. Each LLC member must make quarterly estimated tax payments to the IRS.

While an LLC itself doesn't pay taxes, co-owned LLCs must file Form 1065, an informational return, with the IRS each year. This form, the same one that a partnership files, sets out each LLC member's share of the LLC's profits (or losses), which the IRS reviews to make sure the LLC members are correctly reporting their income.

LLC Management
The owners of most small LLCs participate equally in the management of their business. This arrangement is called "member management."

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Who should form an LLC?

You should consider forming an LLC (limited liability company) if you are concerned about personal exposure to lawsuits arising from your business. For example, if you decide to open a store-front business that deals directly with the public, you may worry that your commercial liability insurance won't fully protect your personal assets from potential slip-and-fall lawsuits or claims by your suppliers for unpaid bills. Running your business as an LLC may help you sleep better, because it instantly gives you personal protection against these and other potential claims against your business.

Not all businesses can operate as LLCs, however. Businesses in the banking, trust, and insurance industry, for example, are typically prohibited from forming LLCs.

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Should I choose an LLC or an S corporation?

While the S corporation's special tax status eliminates double taxation, it lacks the flexibility of an LLC in allocating income to the owners.

An LLC may offer several classes of membership interests while an S corporation may only have one class of stock.

Any number of individuals or entities may own interests in an LLC. However, ownership interest in an S corporation is limited to no more than 75 shareholders. Also, S corporations cannot be owned by C corporations, other S corporations, many trusts, LLCs, partnerships, or nonresident aliens. Also, LLCs are allowed to have subsidiaries without restriction. Contact Us, so we can discuss which direction is best for you.

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What is an LLC Operating Agreement?

An LLC operating agreement allows you to structure your financial and working relationships with your co-owners in a way that suits your business.

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Do I need to have an Operating Agreement?

Although most states' LLC laws don't require a written operating agreement, you shouldn't consider starting business without one. Here's why an operating agreement is necessary:

• It helps to ensure that courts will respect your personal liability protection by showing that you have been conscientious about organizing your LLC.
• It sets out rules that govern how profits will be split up, how major business decisions will be made, and the procedures for handling the departure and addition of members.
• It helps to avert misunderstandings between the owners over finances and management.
• It keeps your LLC from being governed by the default rules in your state's LLC laws, which might not be to your benefit.

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Must I hold LLC meetings?

Although a corporation's failure to hold shareholder or director meetings may subject the corporation to alter ego liability, this is not the case for LLCs in many states. In California, for example. an LLC's failure to hold meetings of members or managers is not usually considered grounds for imposing the alter ego doctrine where the LLC's Articles of Organization or Operating Agreement do not expressly require such meetings.

Exceptions to Limited Liability
While LLC owners enjoy limited personal liability for many of their business transactions, it is important to realize that this protection is not absolute. This drawback is not unique to LLCs, however -- the same exceptions apply to corporations. An LLC owner can be held personally liable if he or she:

• personally and directly injures someone
• personally guarantees a bank loan or a business debt on which the LLC defaults
• fails to deposit taxes withheld from employees' wages
• intentionally does something fraudulent, illegal, or clearly wrong-headed that causes harm to the company or to someone else,
• treats the LLC as an extension of his or her personal affairs, rather than as a separate legal entity.

This last exception is the most important. In some circumstances, a court might say that the LLC doesn't really exist and find that its owners are really doing business as individuals, who are personally liable for their acts. To keep this from happening, make sure you and your co-owners:

• Act fairly and legally. Do not conceal or misrepresent material facts or the state of your finances to vendors, creditors, or other outsiders.
• Fund your LLC adequately. Invest enough cash into the business so that your LLC can meet foreseeable expenses and liabilities.
• Keep LLC and personal business separate. Get a federal employer identification number, open up a business-only checking account, and keep your personal finances out of your LLC accounting books.
• Create an operating agreement. Having a formal written operating agreement lends credibility to your LLC's separate existence.

A good liability insurance policy can shield your personal assets when limited liability protection does not. For instance, if you are a massage therapist and you accidentally injure a client's back, your liability insurance policy should cover you. Insurance can also protect your personal assets in the event that your limited liability status is ignored by a court.

In addition to protecting your personal assets in such situations, insurance can protect your corporate assets from lawsuits and claims. Be aware, however, that commercial insurance usually does not protect personal or corporate assets from unpaid business debts, whether or not they're personally guaranteed.

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How do I get started?

In many ways, the process of forming an LLC are similar to that of starting a Corporation. Contact us, so we can discuss your options and which option would better fit your business needs.

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