Corporate Structure & Taxation Tips

When thinking of starting your own small business, it is critical to understand the available corporate structures, their advantages, and their unique requirements. Many entrepreneurs can successfully run a business but often face hurdles when it comes to the long list of laws and regulations related to corporate structure, taxation, and compliance.

In general, the optimal corporate structure for a sole proprietor will be an S-Corporation or a Limited Liability Company (LLC). These types of entities will both offer limited liability protection to their owners, protecting them from business debts and liabilities. A single-member LLC will be subject to self-employment taxes, which is a hefty 15.3% of income up to $118,500 for 2016. However, if the LLC has only one owner, a separate business tax return will not be required and the business activity will be reported on Schedule C of the taxpayer’s individual tax return. An S-Corporation will not be subject to self-employment taxes, but will require a separate business tax return, which will provide the S-Corp owners with a K-1 to report on their individual tax return. Additionally, there are several differences in the management and formalities required for an S-Corporation and an LLC. Due to the variety of factors that must be considered in choosing the correct corporate structure, it is highly recommended that a new business owner seek the advice of a CPA or a lawyer.

Since most appraisers rely on their vehicles to get to the job site, they should consider the significant tax savings available to them for the business use of their vehicles. There are two methods to utilize when it comes to getting a tax deduction. First, there is the standard mileage method, which is utilizes the standard mileage deduction rate ($0.54 per mile for 2016) per business mile driven. This method will require detailed logs be kept, documenting business travel and miles driven, but is generally the easier option. Alternatively, there is the actual auto expense method, which will allow a business to deduct all actual auto expenses. This will include gas, maintenance, and other costs. If the auto is also used for personal reasons, then only a percentage of these costs can be deducted. As always, the best method can be identified by running the numbers. A competent CPA will be able to direct a business owner towards the best strategy to maximize your auto deductions.

In short, there are many considerations that a small business owner must acknowledge when it comes to structure and taxation. Many times, a local CPA will be able to help navigate the confusing laws and regulations, often saving business owners multiples of the fees they charge for their service. Since there isn’t always a “one size fits all” approach to running a business, it is highly recommended that business owners consult a professional to ensure that there aren’t any loose ends. Furthermore, these professionals will be able to offer their expertise in many other areas beyond just your business, helping you to reach your various financial goals. Please feel free to call Bob Stephens or Tom Hudson at Twilley, Rommel & Stephens, PA at 410-749-1919 or rstephens@trscpa.com for help with all your tax or consulting needs.

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About Robert L Stephens Jr

Robert L Stephens Jr
Mr. Stephens is the managing partner and leads the Firm's Tax Department. He joined the Firm in 1986 and has spent over 30 years in the industry. Bob earned his Bachelor's Degree in Accounting from Salisbury State University in 1984 and a Masters in Taxation in 1985 from the University of Baltimore. His clients include real estate developers and investors, construction contractors, homebuilders, and professional and technical service firms. Bob specializes in tax research and planning, compliance, representation before federal and state tax authorities, and transactional analysis. He utilizes his outstanding technical background and years of experience to develop innovative and creative tax planning alternatives and solutions for clients.

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