Are You Connecting the Dots in Your Business?
When you are operating your business there are many dots to connect from a legal and tax point of view to be in compliance. Many times I find business owners are not connecting the dots and this can create big issues down the road with both legal and tax issues. A common example is having an entity for your business, and you are writing off taxes in the entity and your accountant is not on board with your new strategies. That is a big problem.
Let me share with you the big picture on connecting the dots and mistakes to avoid:
- Your CPA on board with your entity strategy. Unfortunately, many business owners establish an entity first and do not speak with their accounting firm until the year is mostly over to determine what they may need to do with regards to payroll and end of the year taxes. Each year we receive calls from clients who have waited until the last minute to file their personal taxes (due this year on April 17th) and their accountants are wondering why they formed an entity with a certain tax structure. Not all accountants agree with the same approach. The tax firm we work with has been involved in dozens of conversations over the years about the types of entities, situations…so we are on the same page. That is why so many of our clients prefer to work with our tax and bookkeeping services. The right hand knows what the left is doing. Keep in mind that many CPAs have a preference. You will find many that prefer to mostly do 1040s and schedule Cs for individual and sole proprietorships. They may not do many 1120S, the return for an S corporation or 1065 a partnership return.
- Your attorney on board. There may be some legal documents that should be completed after you form the entity for your business. Those may include a buy sell agreement if you have a partner. This is so critical. The most business lawsuits I have seen over the years are not from outside parties, but from partners suing each other. A buy sell agreement is like a prenuptial in marriage, where you determine what will happen if the relationship does not work out while the honeymoon phase is going on. Other agreements include a shareholders’ agreement, living trust for estate planning, independent contractor, employment, non-compete, non-disclosure to name a few. An independent contractor’s agreement is huge to help you make the argument the independent contractor is not an employee. This is not the only test; the IRS has something to say about that also. If you are hiring an employee your liability goes through the roof and you must be protected from workman’s compensation to HR rules.
- Structure items should be organized. Those include completing your corporate or LLC record book. If the business had a DBA name (doing business as) did you connect that to the new entity? Did you open a new bank account for the new entity? If the name was the “same” Marketing Solutions and Marketing Solutions, LLC appear to be the same but they are under two different tax id numbers (or they should be) and should be two separate accounts. If you connect the DBA to the LLC and you want to open an account one for the LLC and one for the DBA linked to the LLC under the same EIN number you can do that also. Do you have a business license for your business? Many cities and counties have stiff fines and penalties if you do not have a local business license. You must know the rules.
- Your financial budgets. Do you have a budget for yourself personally? If not, this can be the kiss of death to your business. Why do I say that? If you do not have a comprehensive personal budget, the tendency is to take more money out of the business to over compensate for your lack of a personal budget. I would recommend having a personal and business budget in QuickBooks® and run your business and personal accounts through the same software. Now you can go back and forth and check out your goals and progress. It is a must to put together both a personal and business budget and update them monthly and make adjustments accordingly.
- Your estate plan. Do you have your ultimate exit strategy in place if something happens to you? Will your family be left holding the bag because you do not have the loose ends tied up? Is the ownership of your LLC tied to your living trust? Do you only have a living will? You want to avoid probate if something happens to you. Rob Bolick, an attorney fromLas Vegas is an excellent estate planning attorney. You can get in touch with Rob at (702)870-6060 or Joseph Dadich out ofMichigan is another top estate planning attorney. You can contact Joseph at (586)604-9168.
Are you operating your business with one strategy but your CPA is not on board? Does your team agree with your overall approach? How many dots have you connected in your overall business? Congrats to you if all the dots are connected. You are one that can sleep better at night knowing things are organized. If you have very few dots connected this may be a great wake up call to make these items and priority for you and your family!