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Business BriefsTax BriefsTax Planning

What’s the Right Entity Type for Your New Business?

July 25, 2026by admin

Start-ups must choose a legal entity for their business activities. The type of entity you select affects how the business is taxed and who may be held personally liable for its debts and obligations, among other things.

Two popular options — assuming you’re going into business with one or more other people — are S corporations and multimember LLCs treated as partnerships for tax purposes. Both are pass-through entities, meaning tax items pass through to the individual owners and are reported on their personal federal income tax returns. And both offer liability protection. But there are subtle differences to factor into your decision. Here’s a closer look at the pros and cons of each.

Multimember LLCs

A multimember LLC essentially combines the legal advantages of corporations with the tax benefits of partnerships. If you operate your business as an LLC, your personal assets are generally protected from exposure to entity-related liabilities under applicable state law. In addition, all LLC members can participate in management without losing their liability protection (unlike partners in a limited partnership).

Members of this type of LLC are subject to the federal income tax rules for partners. That means your share of the LLC’s taxable income items, gains, losses, deductions and credits will pass through to you and be reported on your personal return. The LLC itself doesn’t owe federal income tax.

In addition to paying income taxes on your share of the LLC’s income, you may owe self-employment tax on that income. This includes Social Security tax at a rate of 12.4% on the first $184,500 of self-employment income in 2026 and Medicare tax of 2.9% on all self-employment income. However, half of your self-employment tax is deductible on your return.

It’s also important to note that this business structure isn’t available to all businesses. Certain types of professional practices may be prohibited from operating as LLCs under the laws of some states or applicable professional standards, such as state bar association rules.

S corporations

An S corporation is a special tax designation available to qualifying domestic corporations. Like a traditional C corporation, an S corporation shields its shareholders from personal liability for the corporation’s debts. At the same time, it provides many — though not all — of the tax benefits associated with partnerships.

If you structure your start-up as an S corporation, your share of the business’s taxable income items, gains, losses, deductions and credits will pass through to you and be reported on your personal return. The entity itself doesn’t owe federal income tax.

S corporations have one important advantage over LLCs treated as partnerships: Shareholder-employees aren’t required to pay self-employment tax on their shares of the profits, provided they receive “reasonable” compensation that’s subject to Social Security and Medicare taxes.

However, there are some downsides to consider. Notably, some partnership tax rules that apply to multimember LLCs and their members are significantly more favorable than the rules that apply to S corporations and their shareholders. Here are some examples:

  • LLC members receive additional tax basis for loss deduction purposes from entity-level liabilities, but S corporation shareholders receive additional tax basis only from loans they make to the corporation. This difference allows LLC members to deduct more losses.
  • When an LLC member purchases an interest from another member, the tax basis of the new member’s share of LLC assets can be stepped up. This lowers the new member’s tax obligation when LLC assets are sold or converted to cash.
  • LLCs and their members have greater flexibility to arrange tax-free transfers of assets (including cash) between themselves.

In addition, LLCs can make disproportionate allocations of taxable income, losses and other tax items among their members. In contrast, S corporations must allocate all pass-through tax items among the shareholders strictly in proportion to their stock ownership percentages.

Also, be aware that not all entities are eligible to make a Subchapter S election. S corporations must comply with strict requirements that limit the number and types of shareholders, prohibit complex capital structures, and impose other restrictions (such as transfers to ineligible shareholders).

Make a tax-smart choice

Choosing your business entity requires careful consideration. Taxes play a pivotal role in this decision. Electing S corporation status or forming an LLC that’s treated as a partnership for tax purposes can provide tax advantages, but only if you structure the entity correctly. Before making your decision, consult with us. We can work with you and your legal advisors to determine the optimal setup for your situation.

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Business BriefsTax BriefsTax Deadlines

2024 Q3 Tax Calendar: Key Deadlines for Businesses and Other Employers

June 24, 2024by admin

Here are some of the key tax-related deadlines affecting businesses and other employers during the third quarter of 2024. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

July 15

  • Employers should deposit Social Security, Medicare and withheld income taxes for June if the monthly deposit rule applies. They should also deposit nonpayroll withheld income tax for June if the monthly deposit rule applies.

July 31

  • Report income tax withholding and FICA taxes for second quarter 2024 (Form 941) and pay any tax due. (See the exception below, under “August 12.”)
  • File a 2023 calendar-year retirement plan report (Form 5500 or Form 5500-EZ) or request an extension.

August 12

  • Report income tax withholding and FICA taxes for second quarter 2024 (Form 941), if you deposited on time and in full all the associated taxes due.

September 16

  • If a calendar-year C corporation, pay the third installment of 2024 estimated income taxes.
  • If a calendar-year S corporation or partnership that filed an automatic six-month extension:
    • File a 2023 income tax return (Form 1120-S, Form 1065 or Form 1065-B) and pay any tax, interest and penalties due.
    • Make contributions for 2023 to certain employer-sponsored retirement plans.
  • Employers should deposit Social Security, Medicare and withheld income taxes for August if the monthly deposit rule applies. They should also deposit nonpayroll withheld income tax for August if the monthly deposit rule applies.
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Business Briefs

Your Succession Plan May Benefit from a Separation of Business and Real Estate

November 5, 2019by admin

Like most businesses, yours probably has a variety of physical assets, such as production equipment, office furnishings and a plethora of technological devices. But the largest physical asset in your portfolio may be your real estate holdings — that is, the building and the land it sits on.

Under such circumstances, many business owners choose to separate ownership of the real estate from the company itself. A typical purpose of this strategy is to shield these assets from claims by creditors if the business ever files for bankruptcy (assuming the property isn’t pledged as loan collateral). In addition, the property is better protected against claims that may arise if a customer is injured on the property and sues the business.

But there’s another reason to consider separating your business interests from your real estate holdings: to benefit your succession plan.

Ownership transition

A common and generally effective way to separate the ownership of real estate from a company is to form a distinct entity, such as a limited liability company (LLC) or a limited liability partnership (LLP), to hold legal title to the property. Your business will then rent the property from the entity in a tenant-landlord relationship.

Using this strategy can help you transition ownership of your company to one or more chosen successors, or to reward employees for strong performance. By holding real estate in a separate entity, you can sell shares in the company to the successors or employees without transferring ownership of the real estate.

In addition, retaining title to the property will allow you to collect rent from the new owners. Doing so can be a valuable source of cash flow during retirement.

You could also realize estate planning benefits. When real estate is held in a separate legal entity, you can gift business interests to your heirs without giving up interest in the property.

Complex strategy

The details involved in separating the title to your real estate from your business can be complex. Our firm can help you determine whether this strategy would suit your company and succession plan, including a close examination of the potential tax benefits or risks.

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Business Briefs

Dashboard Software Helps you Keep Your Eyes on the Prize

September 30, 2019by admin

Like most business owners, you’ve probably been urged by industry experts and professional advisors to identify the most important key performance indicators (KPIs) for your company. So, just for the sake of discussion, let’s say you’ve done that. A natural question that often follows is: Now what? You know you’re supposed to keep an eye on these metrics every day but … how?

The right technology has you covered. There’s a specific type of software — commonly referred to as a “business dashboard” — that allows business owners to create customized views of all their chosen KPIs. And these applications don’t just lay out numbers like a spreadsheet. They provide an easy visual experience that allows you to keep your eyes on the prize: a cost-controlled, profitable company.

Cloud-based knowledge

Business dashboards have been around for a decade or two in various forms. But today’s solutions have the advantage of being cloud-based, meaning the data driving them is typically stored on a secure server off-site. And you can access the dashboard from anywhere at any time on an authenticated device. (You can also still run a dashboard from your company’s own servers, if you prefer.)

If you’ve never used a dashboard before, you might wonder what one looks like. The name says it all. Ideally, a dashboard is a single screen of data — like the panel of gauges in your car — that displays various KPIs in the form of pie charts, bar graphs and other graphic elements.

A few must-haves

When shopping for a product, there are a few “must-haves” to insist on. The software should:

  • Support your chosen KPIs,
  • Present itself in a visually pleasing, logical manner that allows you to easily, intuitively follow those KPIs, and
  • Update itself in real time, enabling you to react quickly to sudden swings in your company’s financial performance.

Be wary of vendors that over-promise “otherworldly” knowledge of your industry or try to upsell you on bells and whistles. The simpler the dashboard, the better. There will always be more complex financial issues regarding your business that can’t be put into simple terms on a dashboard.

Also, the rise of artificial intelligence (AI) is causing many to question the long-term viability of business dashboards. AI gathers and shapes data so quickly, and in such massive amounts, that some experts argue that a business owner’s chosen KPIs can rapidly become outmoded.

Nonetheless, dashboard software is still widely used in many industries. Just be prepared to regularly reassess and, if necessary, update your KPIs.

Shop carefully

If you decide to invest in a business dashboard (or upgrade your current one), you’ll need to go about it carefully. We can help you set a budget and compare prices and functionalities to get an optimal return on investment.

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Business Briefs

Is it Time to Hire a CFO or Controller?

September 30, 2019by admin

Many business owners reach a point where managing the financial side of the enterprise becomes overwhelming. Usually, this is a good thing — the company has grown to a point where simple bookkeeping and basic financial reporting just don’t cut it anymore.

If you can relate to the feeling, it may be time to add a CFO or controller. But you’ve got to first consider whether your payroll can take on this generally high-paying position and exactly what you’d get in return.

The broad role

A CFO or controller looks beyond day-to-day financial management to do more holistic, big-picture planning of financial and operational goals. He or she will take a seat at the executive table and serve as your go-to person for all matters related to your company’s finances and operations.

A CFO or controller goes far beyond merely compiling financial data. He or she provides an interpretation of the data to explain how financial decisions will impact all areas of your business. And this individual can plan capital acquisition strategies, so your company has access to financing, as needed, to meet working capital and operating expenses.

In addition, a CFO or controller will serve as the primary liaison between your company and its bank to ensure your financial statements meet requirements to help negotiate any loans. Analyzing possible merger, acquisition and other expansion opportunities also falls within a CFO’s or controller’s purview.

Specific responsibilities

A CFO or controller typically has a set of core responsibilities that link to the financial oversight of your operation. This includes making sure there are adequate internal controls to help safeguard the business from internal fraud and embezzlement.

The hire also should be able to implement improved cash management practices that will boost your cash flow and improve budgeting and cash forecasting. He or she should be able to perform ratio analysis and compare the financial performance of your business to benchmarks established by similar-size companies in the same geographic area. And a controller or CFO should analyze the tax and cash flow implications of different capital acquisition strategies — for example, leasing vs. buying equipment and real estate.

Major commitment

Make no mistake, hiring a full-time CFO or controller represents a major commitment in both time to the hiring process and dollars to your payroll. These financial executives typically command substantial high salaries and attractive benefits packages.

So, first make sure you have the financial resources to commit to this level of compensation. You may want to outsource the position. No matter which route you choose, our firm can help you assess the financial impact of the idea.

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