COVID may have greatly impacted your business in 2020.
We are all hoping that 2021 is a much better year for everyone.
January is right around the corner – a time when many traditionally revisit their goals and priorities for the year ahead.
One of NCP’s most important new year goals is to help you be more proactive in launching that profitable new business initiative or creating better protection for your assets.
We’ve found a solution that will help you feel more confident going into 2021 by establishing a complete foundation for your business and personal assets like real estate or investments. The best part is that takes less than 30 minutes of your time!
If you’re looking to form an LLC (most popular) or corporation (no matter what state) , December is the best time to get this done.
Waiting until January can be the most risky and costly approach – here’s why;
• If you wait until 2021, by the time the entity is filed and everything is in place, more than likely you will be operating as a schedule C for two to three weeks of the beginning of the year (assuming you are operating a new business, real estate is different).
• You are risking an audit! There is a $300 Billion tax gap and the #1 culprit is sole proprietors that file a schedule C (that’s why we want to help you avoid that track in 2021, or at least be on it for the shortest possible time).
• We realize that most incorporating services say they incorporate in 24 hours (which may be true but there are additional steps required to establish you business with EIN, banking and more by the first of the year and they all take time. Some states are very backed up with filing and it may take from 5-12 business days up to several weeks for them to process everything.
• Keep in mind at this time of the year; secretaries of state around the U.S. are becoming more and more overloaded with filings (mostly due to budget cuts). This means that even if filing expedited, it can take much longer to form your entity and get a bank account open in time for any end of the year transactions.
Here is some GOOD NEWS!!
We can help but we need you to take the first step to get started. Learn more here.
Even if you’re not 100% certain whether a new entity is best for you or just have a few questions about the process, we can help you make the decision that’s best for your individual needs. If a new entity will not improve your business situation, we’ll let you know with no risk or obligation on your part.
Perhaps this Strategy will be a Big Advantage for You…
Take advantage of immediate tax savings! Sec. 195 of the IRC states that capitalization of start-up expenses (up to $5,000) may now be immediately written off against personal income (S corp and LLC taxed as a flow through).
This ONLY comes into play if you start your business in December.
In most cases, the best option is to incorporate in December but record a January start date on the SS4 for the EIN to avoid a short year return (does not apply to C corps).
As a reminder NCP forms corporation and LLCs in all 50 states, and our goal is to help you launch your business with confidence. We will also help you build business credit and Keep the IRS off your back! Most importantly we have the tools and systems to help your business get off to a fast start to profits.
Also, if you have any partners or referrals that may plan on starting a new company at that time, please have us call them now (we now pay a 10% referral fees).
CAUTION: Avoid forming a $99 corporation or LLC, most of the times they will provide ZERO protection if challenged because it is not a COMPLETE FORMATION.
Anytime you form a separate legal entity for a business or protect safe assets, it is very important to complete the entity structuring fundamentals.
When an entity is formed, you should be very clear on the best structure to support your goals, both short- and long-term.
For example, a C corporation may have lower tax brackets than you or I do personally, AND you may pay fewer taxes in year one, but it may be the WRONG structure for your results in years 2, 3, 4, and so forth.
If you are not looking to retain earnings in the company and grow and expand with infrastructure and overhead, it may be the wrong entity for your business.
If you are forming an LLC, you should know how the LLC is taxed and managed by managers or members. There is a big difference, especially with how the LLC is taxed.
To select the best entity, keep in mind that you must approach it from two main points of view: the best entity from a tax point of view and the best one from a legal point of view.
After you are clear on your goals, both short- and long-term, it is time to form the entity.
You want to be clear on who is the initial director if a corporation or manager/member, if an LLC. After forming the articles of organization or articles of incorporation (for a corporation), your next step is to open a bank account and capitalize on the new entity.
This seems simple, but so many people open an LLC bank account with a check with revenue and never properly have the owners capitalize and put money into the account in exchange for ownership in the company.
If you are the entity owner, you should be the one putting money (or service or equipment) into the company in exchange for an ownership interest.
If you have another entity that is the owner, that entity will put money into the operating company in exchange for an ownership interest.
If you have a partner and are not going to put in capital to match your ownership percentage and one is going to contribute services, that may be a taxable event (check with your CPA).
In other words, if you get a 50% ownership in a business with no money in exchange for your labor (sweat equity) and your partner puts in $50K for their 50% ownership, the IRS looks at this as if you obtained $50K in value and would owe taxes on the $50K.
In that situation, are you able to say of the $50K, $45K was a loan, and therefore if your partner put in $5K, then there is no tax issue. That is correct, but now you have a totally new situation where the business will need to pay back the $45K loan out of profits before either partner is paid any profits.
Next, you have to ensure that if you were operating as a sole proprietorship before or a general partnership now, you actually make a complete transition to that new entity when you form the entity.
Over the years, I have seen too many people still operating as sole proprietors, even though they have formed an LLC.
How is this possible?
Several mistakes are when you don’t open a new bank account in the name of the LLC or corporation and keep operating under the bank account in your name as a sole proprietorship.
The other big issue is if you have a DBA or fictitious firm name linked to you personally and you form the separate legal entity and forget to reconnect the DBA name to the NEW entity – that is a big mistake.
Corporate and LLC formalities are a must (even if you incorporate in Nevada).
A corporation and an LLC are separate legal entities from you and me personally. They can do everything you can do except act and think. They do that through minutes, meetings, and resolutions.
This is the documentation for major decisions made by an entity such as adding a shareholder, changing the officers or managers, leasing real estate…Some falsely believe that LLCs are “easier” because they do NOT require the same formalities corporations.
When we did our research years ago looking at what judges actually do, we found they expect to see the same corporate formalities that apply to corporations.
That means an LLC will need an operating agreement, minutes, meetings, and resolutions for major decisions, membership certificates, and a membership ledger to track the owners.
This is all part of protecting both the LLC and corporate veil. If someone is going to sue your entity and do not operate it as such a legal entity, you MAY be personally liable.
The final big step to ensure your entity is structured properly is to make sure your taxes are being paid properly. That starts with knowing how your entity is taxed and the responsibilities with that.
If the entity is an LLC taxed as an S corporation, you will probably have some payroll required at some point in the year, even if to pay yourself.
If you have an LLC taxed as a partnership, you will realize that you will not be paid a salary if you are one of the LLC members. You may be paid a “guaranteed payment,” which is similar to but not a W-2.
It is very important to make sure that you work with a good tax team to keep you on track with your business entity.
Making sure your entity complies is a very important step in the process to build and protect your wealth! Take the time to create an action step or two, so you keep moving forward in your business and towards success!
If you need support with forming a new LLC or corporation, contact my company NCP at 1-702-367-7373. We incorporate in all 50 states and have amazing support to make it an easy experience for you.
If you’re not a U.S. resident, opening a U.S. bank account for your U.S. business entity can be a challenging task.
We’ve covered the many advantages of having a U.S. entity in our NCP blog post, but once you’ve cleared that hurdle, the next big step in establishing trust with U.S. buyers is having a credible physical presence for your business inside the United States.
While there may be a few exceptions on certain high demand items, U.S. consumers will generally feel safer choosing an online seller that appears to be based inside the U.S. before they’ll buy overseas.
This awareness and the huge rise in U.S. online sales has created a dramatic increase in the number of foreign marketers establishing a U.S. LLC or Corporation.
Here are the critical elements of a credible U.S. business presence:
A U.S. LLC or corporation (compliance and tax advantages). Learn more here about which state is best.
A physical U.S. address that is NOT a UPS store or PO box (consumer trust and banking credibility).
A U.S. bank account (payment processing and merchant fee advantages).
Whether you think of them as legs on a stool or spokes in a wheel, it’s immediately apparent that having all three securely in place will send a much stronger marketing message and give your U.S. income stream a lot more stability.
It’s relatively easy to form a corporation and obtain the requisite “EIN” number without being physically present in the U.S. but opening a U.S. bank account from outside the country is nearly impossible.
U.S. banks have a fiduciary responsibility to know the client AND to have met with them BEFORE opening a U.S. account.
Here’s what banks require from non-residents to open a U.S. account (some requirements will change slightly from bank to bank):
Articles for the U.S. entity or the name of the sole proprietorship or general partnership
EIN (Employer Identification Number) for the business (obtained through the IRS)
Lease agreement for an office address (highly preferred over a P.O. box). We offer that service.
Your business address in your home country
Color copies of passport and driver’s licenses for all persons on the account
Reference letter from a bank officer in your home country verifying the following:
How long you’ve been a customer
That they’ve viewed your current identification, noting ID type and number
Your current home and business addresses
Your home, business, and cell phone numbers.
Your occupation and employment information
$100 – $500 opening deposit wired to the account (general deposits of $1500 – $2500 are recommended to avoid minimum monthly fees).
The big question is; do YOU have to be in the U.S. in person to open the account?
99% of the time, the most reliable answer is YES.
As noted earlier, banks consider it part of their fiduciary responsibility to meet with you in person when opening a U.S. account, especially in the “post-patriot act” regulatory environment.
For example, Bank of America requires you to be here in person AND have an ITIN number before opening a U.S. account.
Citibank® has an option to establish an account without coming to the U.S., but ONLY for personal accounts, and last year they raised their minimum balance requirement to $50,000.00.
The simplest strategy is to plan ahead, allow some extra time, and make opening a business bank account part of your next routine trip to the United States.
Many of my international clients have had good results with Citibank® which has an established global presence and a wide variety of service options for international customers.
Earlier I said that opening a U.S. account is “nearly” impossible without being physically present inside the country, but there are some limited exceptions.
If travel to the U.S. is not a viable option for you right now, there are a few options worth trying, but keep in mind that this information changes frequently.
Both banks and governments are constantly revising their bureaucratic procedures and regulatory practices.
At first glance, online fund transfer portals like PayPal™ and their many competitors may look like an easy way to get around the cost and hassle of establishing a face to face banking relationship in the U.S.
As it turns out, PayPal™ has begun checking the ISP address of the person who is withdrawing funds in the past few months.
They’ve become as wary of government regulatory entanglements as the bankers and started freezing accounts for ISPs outside the U.S. and requiring a U.S. bank account for fund transfers.
This is an especially important consideration for businesses that rely heavily on ACH transactions.
So what viable options do you have?
Some of my readers and clients report that HSBC may be able to establish a U.S. account for you after you’ve had an HSBC business account in your home country for at least 3-6 months.
The time requirement may vary from one country to another and you can find out if they operate in your home country at http://www.hsbc.com.
The local branch officer in your home country will walk you through the steps required to facilitate opening a U.S. account on a case-by-case basis.
In general, just remember that preference for U.S. account approval is most often given to customers who already have an established business banking relationship with a branch in their home country.
As of this writing, HSBC has branches in California, Connecticut, the District of Columbia, Delaware, Florida, Maryland, New Jersey, New York (their corporate headquarters), Oregon, Pennsylvania, Virginia, and Washington.
The state we recommend is Florida which, like Nevada, has no personal state income taxes.
Keep in mind that many states, including Florida, require separate state registration for your business once your bank account has been established.
We routinely guide our NCP incorporation clients through frequently overlooked compliance matters like these to help them avoid costly mistakes when they set up their U.S. operations.
When we checked with HSBC, they told us that opening an account in this manner requires a site inspection of the account holder’s U.S. office.
In our hypothetical Florida example, you would need to establish a physical executive office address in Florida.
Costs for this vary and are separate from any banking or incorporation fees but may average around US $3,000 per year.
We would only recommend taking this step once your home country HSBC branch has confirmed that you can establish a U.S. account through your home country.
To make this process faster and more cost effective, we recommend comparing prices and features on complete U.S. address services such as the ones we provide for NCP clients.
Even if you’re operating in your own name as a sole proprietorship, you’re setting up a business account, not a personal account.
With most banks, the rules for business accounts are significantly different from the ones for personal accounts and requirements can also vary from country to country.
Before opening a U.S. account with any bank, pay especially close attention to their wiring policies (including holds, fees, and tax implications) and how they affect your ability to control and access the funds in your U.S. account.
The challenge with most U.S. banks is that local branches may appear to operate as individual “franchises” even though in reality they’re not.
Because they all have local targets to hit for new accounts and other market-specific performance metrics, you’re likely to get different answers from branch to branch on their business account rules and procedures.
We encountered this with Wells Fargo, certainly not a small-time boutique operation, where a couple of eager local branch managers said “yes” but later got overruled with a “no” at the district level.
In the final analysis, virtually all banks agree that coming to the U.S. in person is the best way to ensure a smooth and convenient start for your U.S. business account.
Anytime you’re visiting unfamiliar territory, it always helps to get travel tips from someone who’s made the trip before you – someone who knows the wrong turns to avoid and how it feels to be a newcomer.
Meet Kevin and Melissa Knecht – a husband and wife entrepreneurial team wrapping up one of their most successful and abundant years ever!
Click here to watch their video:
How did they do it? Kevin and Melissa are happy to share their secrets with anyone ready to take their business success to the next level. Certainly, they already had the desire, determination, and a clear vision of their destination.
What they were missing was a complete business foundation that could multiply and protect their profits. After some heavy comparison shopping for someone to walk them through the process of forming a corporation or LLC, they decided that NCP was the best value.
Sure, we could go on about the comprehensive process we took them through – but no one can explain what this experience did for their confidence and earning power better than Kevin and Melissa. They share the important highlights in this quick video.
If you’re ready to put your business on a powerful new success trajectory in 2021, as Kevin and Melissa did, NCP is ready to help! You’ll be amazed at how fast, complete, and affordable our system is. Please take the next step and call us today at 1 (888) 627-7007 or (702) 367-7373.
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