David Miller CPA helps prepare a variety of business returns, each with its own unique needs. Each entity type is different. C Corps are more robust, often with multiple investors. S Corps owners usually have questions about payroll and retirement. Partnerships need to allocate income accurately. Single-member LLCs and sole proprietors often need guidance with deductions, retirement plans, and home office deductions. Regardless of your needs and company type, we can help.
Corporate Tax Preparation
If you are starting a new business, we can help you choose the right entity type. Many things affect this decision, such as how many shareholders/or partners you expect to have and the forecasted profits.
There is also a distinction between the tax structure and legal structure. For example, an LLC (Limited Liability Company) can be taxed in a few different ways.
C Corp
C corporations are unique in that the corporation pays its own income tax. This is different from other corporate structures which pass income to the owners’ personal tax returns and the tax is paid there.
Large corporations are generally C corporations. This is because it is the only entity form that works for them. Other corporate structures have limits on shareholders and/or require personal info about shares holders to be reported to the IRS. Privately held C corporations typically have chosen the structure for reasons other than income taxes.
One group of companies that utilize the C corporation structure are high-growth startups seeking funding. They are forced to go this route because their target investors may be entities or foreign individuals, neither of which are allowed to invest in an S corporation.
S Corp
As companies become more complex and profitable, partnerships and proprietorships tend to be less suitable. Enter S corporations. S corporation owners are required to pay themselves a reasonable wage (which is subject to FICA tax) but the remaining business profits are subject only to income tax which is very beneficial.
Like partnerships, S Corps are pass-through entities, but the S corporation structure is typically preferred because of the savings with FICA tax. This savings does come with additional complications, so it is not recommended for every business.
Partnership
A partnership is a multi-owner version of a sole proprietorship or LLC. The paperwork requirements are minimal which makes them ideal for small businesses. It is important to at least have a written partnership agreement that controls the operations and ownership of the company.
Business income does not need to be allocated proportionately by ownership. This flexibility can be helpful when there is a silent partner who contributed most of the capital. Any such arrangement must be clearly laid out in a partnership agreement.
Like sole-proprietorships, a downside of partnerships is that a large portion of the income can be subject to FICA taxes. This is because partners do not receive wages, but rather guaranteed payments for their services.
Sole Proprietorships & Single-Member LLC
Whether you have just started a business or have an existing one, the first question is often “should I incorporate?”. The answer depends on a lot of things. The first thing that surprises people is that it might not change your taxes either way. A sole proprietorship and single-member LLC are treated EXACTLY the same way for tax purposes. Other corporate structures change your taxes, and there are considerations other than taxes for choosing to incorporate. The best thing to do is talk to us about your specific situation, and we can give you the best guidance for you and your business.