New Business - Entity Selection
The
first hurdle to overcome in establishing a new business is selecting
the type of entity for your business. There are several options, each
with strengths and weaknesses. Depending on the size, business
activity, and necessary liability protection, your business can elect
to be a C-Corp, S-Corp, Partnership, LLC, LLP, Sole Proprietor, etc.
Please call me with questions you may have about setting up your new
business.
- Leon D. Goldsmith, CPA (June 25, 2008)
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Bunching Deductions
If you
are a taxpayer that itemizes your deductions, but only exceed the
standard deduction by a small amount, consider trying a technique
called 'Bunching'. With this technique, you try to bunch your
deductions every other year and take the standard deduction on the off
years. This can be done by pushing up/back mortgage payments, property
tax payments, and charitable contributions in order to get the most
deductions possible in a tax year. The following years deductions would
then decrease, but you are entitled to take at least the standard
deduction in that year. This technique can maximize your tax deductions
and thereby lower your total income tax over several years.
- Leon D. Goldsmith, CPA (June 11, 2008)
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Reasonable Compensation
Many
small businesses incorporate as an S-Corp in order to "pay less tax".
The way this technique works is that once incorporated the owners pay
themselves a lower salary and take the excess income out as
distributions. This reduces the Social Security taxes for the owners.
The problem here is that many do not know that they must first pay
themselves "reasonable compensation" before taking any distributions.
Some do not take a salary at all. Every corporate officer should
receive a reasonable wage for their services before distributions are
made, and what is considered "reasonable" varies depending on the type
of business and level of income. If you are using or considering this
technique, I would be happy to assist you in determining the
appropriate level of compensation and distributions for your business.
- Leon D. Goldsmith, CPA (June 4, 2008)
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Withholding Trap
For married
taxpayers filing a joint return: If both taxpayers are working, be
careful if you both claim 'Married' on your W-4. The tax tables assume
one wage earner per household. So when you claim 'Married' on your W-4,
the tax withholding tables allow for the standard marital deduction.
The tables also shift from one tax bracket to the next at a higher
level when you claim 'Married'. So if married couples both claim
'Married' on their W-4, there is a strong probability that you will be
under-withheld, even if you claim zero exemptions. This can be
corrected by claiming 'Married, but withhold at the higher Single rate'
on your W-4.
- Leon D. Goldsmith, CPA (May 28, 2008)
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