Attention: Sole Proprietorships – Discover Why You Have the Wrong Business Structure to Grow.

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Have you updated your goals going into the fall for this year? If the outcomes you’re looking forward to this year include making more money, gaining more clients, boosting your profits, cutting your taxes or attracting lucrative joint venture partnerships…

the FIRST STEP is to STOP operating as a sole proprietorship! This is the time to make the shift, not waiting another 5 months until January. You want to escape the sole proprietorship trap for many important reasons:

1. Highest Audit Rate. Filing a schedule C means you are 300% more likely to be audited by the IRS . Why? The IRS is has a $300 BILLION tax collection gap each year, and a large percentage comes from small business owners who file a schedule C – not large corporations. In the eyes of the IRS, small business owners are more likely to under report income and exaggerate expenses. Now, I’m not saying that you’re making these big mistakes yourself, but the IRS will ASSUME that you are, simply because so many other sole proprietors do. That makes you an easy audit target!

2. Highest Taxes. Sole proprietorships pay the highest business tax rates. Not only will you pay the 15.3% employment taxes up to $118,500 in 2015, plus 2.9% for Medicare, you may also be required to pay a number of other state and federal taxes. Of course, as a business you may be able to offset some of that with business expenses or home office deductions (assuming they’re all properly set up and documented), but referring back to point #1, you’re setting yourself up for a potential audit.

3. Highest Liability. Here’s the bottom line for sole proprietorships – when you do business in or own name or under a DBA, you have UNLIMITED PERSONAL LIABILITY for ANY legal issues that come up . Without the protection of a properly structured separate legal entity you may lose most of your personal assets, including the equity in your home. Maybe you’ve been operating as a sole proprietorship because you don’t have many assets to protect right now. If you hope to change that in the future and accumulate more wealth, it’s worth considering that you could be sued later for something you’re doing now. If someone gets a judgment against you, they could chase you for years waiting until you DO have assets to go after. Sole proprietorships offer no protection – even against frivolous lawsuits which run into hundreds of billions in the U.S. each year. Our research turned up a woman who filed over 700 lawsuits. Her “business” strategy was targeting people with money who were unprotected and a person like that will go after anyone!

4. Fewer Funding Options. Operating as a sole proprietorship means you’re self financing your business – most likely on your personal credit cards! That drives your revolving debt up and your personal credit score down – which can hurt your chances for business credit later on. Even though it’s vital to keep business and personal credit separated, your personal credit history does affect your ability to qualify for certain kinds of cash funding options – including the amount of money you get and the interest rates you’ll pay. The key is to STOP using personal credit to finance your business and form a separate legal entity ASAP. This critical step paves the way for financial credibility – which means more and better opportunities to use other people’s money to grow!

5. A Lousy Marketing Message. If your first year profit projection is under $50,000, a CPA or tax professional might advise you to “keep it simple” and start out as a sole proprietor. In rare individual cases that might be good tax advice, but it doesn’t position you for long term success – there are other essentials to consider if you want a complete business foundation. When potential customers or important suppliers or partners are evaluating your business, what MARKETING MESSAGE does your sole proprietorship send? Sharp business people may take it as a sign that your profit (and longevity) expectations are LOW and take their business elsewhere. Sadly, they may never tell you the real reason why they chose not to do business with you – would you risk your own money, reputation or relationships on a company that might not be around tomorrow? You may have already lost revenue and growth opportunities if you’ve been operating as a sole proprietorship. If so, it’s time to position your company as a winner with the right foundation for success.

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Is Your Business Screaming For An IRS Audit?

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As tax time nears you should be aware of the trends that are clear – the IRS is targeting more small businesses for audits and they’re denying deductions left and right.  Sole proprietorships are especially at risk. I have confirmed with my CPA networks that there is a huge risk to continue to operate as a sole proprietorship. Our CPA contacts are also recommending that you should get off schedule C in 2014 ASAP.

Here are just a few of the audit trigger red flags that IRS agents are watching for:

  • claiming 100% business use for your vehicle (this will almost certainly invite an audit)
  • large deductions that seem out of proportion for the business (this is what their computer systems look for)
  • any schedule C deductions for business travel, meals or entertainment (you are able to take these deductions but if excessive and if audited not documented properly you are toast)
  • hobby losses claimed as business expenses (you best be able to prove you were a real business)
  • regular wage income combined with large schedule C losses (you must prove you had a real business, which we teach you those requirements on the training below)
  • any documentation that doesn’t meet their strict substantiation requirements (this is NOT your CPAs responsibility, it is yours)

 The vehicle deduction is a very common slipup. The IRS knows that 100% business use is extremely rare, especially when there’s no other vehicle for personal use. Activities like photography, dog breeding, car racing or other sports or outdoor activities are tough to substantiate as business expenses because they look like hobbies to the IRS.

Could your business be sending an “audit me!” message to the IRS? The surest way to protect yourself is to establish a complete foundation for your business, starting with a properly formed separate legal entity. Do you know the 5 essential elements of a complete business foundation? Take advantage of this brief, free training to find out where you may be vulnerable to the IRS!

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NEW TrainingThe 5 Essential Components for a Complete Business Foundation: 
http://budurl.com/LaunchWithConfidence

Pick your time and date to be part of this special training.

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