The major objective for most people in business is to maximize profits. Cutting your taxes will help you achieve that goal. Review these 5 tax tips; then contact us for assistance in identifying and implementing the best strategies for you.
1. Choose your legal form of doing business carefully
The tax and non-tax consequences of the forms you select are significant. The basic forms of operations from which to choose include sole proprietorship, partnership, corporation, or Limited Liability Company (LLC). Seek professional assistance before deciding, and review your chosen business
form from time to time to see if it's still appropriate.
2. Consider "Section 1244" stock for a new business
If you're starting a business and choose to operate as a corporation, investigate the advantages of Section 1244 stock. There are requirements that must be met, but if your stock qualifies and your business later fails, you can deduct up to $50,000 of the loss against ordinary income each year ($100,000 on a joint return). Without the Section 1244 benefit, the entire loss would be subject to the capital loss limitations.
3. Incorporate and elect S status
If your sole proprietorship or partnership is producing a net profit in excess of a reasonable compensation for your time, you could save money by operating as an S corporation. You're required to take a reasonable salary for the work you do but no more than that. With an s corporation, the salary you take will be subject to both income and payroll taxes. The profits above that amount are subject to income tax but not payroll taxes.
4. If you operate in corporate form, keep accurate and thorough minutes for the corporation
Minutes should document transfer of funds or assets into or out of the corporation, officers' salaries, shareholder dividends, officer and employee benefits, and related-party transactions that might be scrutinized by the IRS.
5. If your business is incorporated,
it is often a good idea for you to personally own the business real estate and lease it to your corporation. There are a number of tax and non-tax concerns relating to real estate ownership. See us before you acquire new business property or before you change the ownership of property you already have.