Questions to Help Determine if an LLC or Corporation is Best.

Jun 13, 2019 by

Which entity is best for your new business, an LLC or Corporation? When you form a new LLC or corporation, the process is so easy, with so many online websites. Filing the articles with a registered agent is the easiest part of the process. The challenging part is to determine how your corporation or LLC should be taxed at a federal and state level and to make sure you have a complete formation, one that has real liability protection, not just filing the articles, which has ZERO protection.

Ask these Questions to Help You Determine is an LLC or Corporation Best?

Ask these Questions to Help You Determine is an LLC or Corporation Best?

Here are some of the key questions we recommend you evaluate before you form an LLC (which may be taxed in four different ways) or a corporation that may be taxed as a C corporation or an S corporation.

  • What is your business and how does this affect your choice?
    • A personal service corporation, in the past, was a flat 35%; but since the 2018 tax cuts, that has now been reduced to 21%
    • 20% deduction for pass-through income, with some restrictions
    • Are you investing in real estate or do you flip real estate?
    • Are you an e-commerce seller with potential sales and state income tax requirements?
    • Do you own real estate? If so, are you a dealer or investor? How many properties do you own? How much total equity and what percentage of your total net worth is all the properties?
  • Do you have partners?
    • Is it a domestic partner in a community property state (there are 9)? This comes into play with a single or multi-member LLC. 
    • Is it a foreign partner in another country? If so, is there a tax treaty with your partner’s country?
    • Do you plan to have a buy-sell agreement?
    • Is one partner an investor? This has a big impact on how your LLC is managed. 
    • Do your partners have an SSN or ITIN (this is important for banking, U.S. merchant account, and sales tax registration in a few states).
read more

Distributions from an LLC

Apr 23, 2019 by

Know how your distributions from an LLC are taxed are critical to your LLC formation strategy. After your LLC is formed and your business is up and running and revenue is flowing in it will come to that important point where you will distribute money to the partners. That may be just you, your spouse or other outside partners.

Most simply think about writing a check from the LLC to themselves as the owner and really do not consider the tax ramifications of their actions. This is especially important any time you have a partner, whether that is a spouse, outside partner, separate legal entity.

LLC Distributions

LLC Distributions are a critical part of your LLC taxation options.

Let’s address some basic fundamentals first then get into more details:

The first step is to be aware of how your LLC is taxed. Are you a single member LLC taxed as an S corporation, or disregarded for tax purposes? If you have earned income and a single member LLC that will flow through to schedule C (basically you are operating as a sole proprietorship, but have the liability protection of an LLC). Test question: Is there any payroll for a single member LLC? The answer: depends. If the LLC is disregarded for tax purposes there is NO payroll to the owner. Is it possible for a single member LLC to have employees? Yes. If the single member LLC is taxed as an S corporation, the active member (owner) would have payroll and distributions. If you have a single member LLC taxed as an S corporation, of course, the only member is active. If you have a two-member LLC taxed as an S corporation, it is possible that the second member could be passive (this could be a spouse or silent partner). Would the passive member be the manager of an LLC managed by managers? No. By definition, if passive they would not be running day to day operations. Keep that in mind.

A single member LLC taxed as a C Corporation; there would be at some point some type of payroll to the owner of the C Corporation. Is it possible that there was only enough revenue in the LLC taxed as a Corporation to pay business expenses only and not enough profits left over for any type of payroll? That is possible. You may take dividends out of the LLC taxed as a C Corporation, but keep in mind dividends are NOT deductible to the LLC taxed as a C Corporation’s profits.

An LLC taxed as a partnership is a very common structure. The big mistake you want to avoid is doing payroll for partners. There is NO payroll to partners in an LLC taxed as a partnership. There is something called, “guaranteed payments” to the manager of the LLC for their role in the day to day operations of the LLC which is subject to employment taxes, but it is not payroll. The members (or partners) of the LLC will receive distributions in profits. If the member or partner is actively involved in operating the business those distributions will be subject to employment taxes.

read more

Related Posts

Share This

Your LLC and Corporate Responsibilities as a Manager or Officer

Apr 10, 2019 by

The manager of an LLC or officer of a corporation have important responsibilities they must execute properly to give them personal liability protection.

Forming a separate legal entity is a huge step in separating your personal and business liability. You obtain liability protection with a separate legal entity the day you file the LLC or Corporation.

What most people do not realize is that after day 1 and beyond you are not protected unless you operate the entity as a separate legal entity.

That involves avoiding commingling of funds, proper capitalization and proper minutes and resolutions as your role as the director, officer, shareholder or manager, member or member of an entity.

Typically as a director of a corporation or a manager of an LLC, your liability is limited personally. As long as you operate within your role as the manager of an LLC or director of a corporation. Nevada will protect you as long as you do not commit fraud. Other states have a minimum fiduciary duty or duty of care.

Your LLC and Corporate Responsibilities is Vital for Compliance and Protection.

Your LLC and Corporate Responsibilities is Vital for Compliance and Protection.

Let me cover for you the biggest mistakes we have seen over the years that have caused unnecessary liability to directors, officers and managers:

read more

82 Costly Sales Tax Registration Mistakes to Avoid

Mar 29, 2019 by

Your Steps to Simplify Your Sales Tax Compliance.

We created this new report recently for new e-commerce sellers looking to get into compliance with sales tax and are at the stage to get registered for sales tax in many states. This content is covered in various parts inside your Sales Tax System membership.

We wanted to share this report for you also as it is a great reference guide as you get into compliance with more states where you have physical or economic nexus.

read more

Patterns that Create Business Failure and Business Success—An NLP Prospective

Mar 29, 2019 by

Business and life do have patterns of success and failure. NLP (neuro-linguistic programming) is the study of the connection between the neurological processes (“neuro”), language (“linguistic”) and behaviour patterns that have been learned through experience (“programming”) and can be organized to achieve specific goals in life and business. I like to use this simple definition: it is a study of patterns or recipes. If you have a great recipe for your favorite meatloaf there are certain ingredients that if are added in the correct amounts and sequence will create a specific result. This is similar to an NLP pattern.

For example, good spellers do one thing differently (or have one more ingredient) than bad spellers. Good spellers will first see a word visually in their mind, sound it out, and then spell it. Bad spellers will skip the step of visually seeing the word and jump right to sounding out a word, then attempting to spell it out. Good spellers have a different “recipe” than bad spellers. They have one ingredient different.

In business, there are patterns of success and failure. One core pattern for business success is the Disney pattern. This was molded after the famous Walt Disney. Walt and his team of Imagineers were able to accomplish amazing results with their meetings. Walt did not run a meeting like most business meetings. He would separate meetings into different meetings. In the first meeting, called “the dreaming room,” you are allowed to come up with ideas and that is it. There is no evaluation or organization of ideas. That is a separate meeting! Why? If you start
allowing your staff or yourself to evaluate ideas in the meeting many times that will stifle the new ideas. People will start to think, “Maybe my idea is not such a good idea”. That is NOT how Walt Disney conducted meetings.

I would recommend you adopt this pattern for your business meetings. Here are the four meetings Walt would run: First is the “in the dreaming room” – all brainstorming. Second is organizing the ideas. The third is to evaluate the ideas. Fourth would be to implement the ideas.

This was his brilliant pattern for business success. This is especially important if you are a solo business owner. You may be sabotaging your own success by coming up with great ideas and immediately thinking how can this NOT work. That will stifle even your own ideas.

Another pattern that seems to prevent a lot of success is lack of time management skills. Most people think they are very good at managing their time and they are really not. You can calibrate in a minute to how well you are doing and perhaps consider a different pattern for success.

The poor time management pattern looks like this:

read more

Related Posts

Share This