Accounting News and Notes

Duluth/Lawrenceville/Gwinnett/Atlanta CPA on Utilizing Your Bookkeeping, Financial and Tax Return to Gain Key Management Information 

Keep Your Tax Bill As Low as Legally Possible: Only You Can Prevent Undue Tax Burdens

As each business owner/entrepreneurs situation varies dramatically, great care should be afforded in closely held business to ensure that taxes have been appropriately considered for all. When there is more than one partner, it may be wise to consider assisting in making shareholder/member distributions at the highest partners marginal tax rate to ensure that everyone gets at least enough to cover their respective tax obligation. Each of these entities will issue a K-1 to each individual shareholder to reflect their corresponding share of entity profits.

Understanding the Tax Advantages of Being an S Corporation

Although S Corporations have to issue K-1’s and make distributions based upon stock ownership percentages, partnerships, LLC’s, and LLP’s are allowed by law to issue K-1’s and member distributions based on any method that all owners agree upon. This is a distinct advantage partnerships, LLC’s and LLP’s have as agreeing members have the ability to do what they will with the profits whereas S corporations are required to issue distributions and K-1’s based upon each shareholder’s ownership percentage. Your CPA should be your primary financial adviser offering you insight and guidance, even when not initially sought for it is your CPA who is best able to offer information and suggestions to ensure that your business not only survives but thrives. The below is a sample letter we might use to guide a taxpayer with financial insight, while serving as their CPA and Virtual Chief Financial Officer:

Regarding Your 2009 Corporate Returns 

Your 2009 cost of goods sold (cost of doing business) is 90% leaving only 10% to cover salaries and other expenses creating a book loss of $25,000. I suggest ASAP that we review our pricing guidelines and adjust so that margins are at least 20%. This would allow for your operating expenses to approximately remain the same and break-even. To ensure profitability, given present expense levels, I would suggest increasing your gross margin to 25% ASAP. 

Tax law does not allow S Corporation owners to deduct tax losses except to the extent of your tax basis (which is calculated predominantly by a review of retained earnings and current loans made to the company). Therefore this year’s tax loss of $25,000 will be rolled forward to future years when you might have tax basis. 

Tax law requires all S Corporation owners to take a fair and reasonable salary given position and profit. The paying of  excessive salaries, when you have a business/tax loss, has resulted in you paying approximately $14,000 of FICA/Medicaid taxes that would otherwise not be due and payable and $10,000 of 2009 Income Taxes on your 2009 Personal Return that otherwise would not have been due, as your W-2 was taxable, while your losses are suspended as your did not have any tax basis in order to deduct them. 

John 15:13 Greater love has no one than this, that he lay down his life for his friends. 

John Dillard, CPA of His CPA, PC (An Atlanta Christian CPA firm) 1940 Woods River Lane, Duluth, GA 30097  Phone 770-814-9304   http://www.hiscpa.com/    http://www.john-dillard.com/ To retain John Dillard CPA (An Atlanta Christian Speaker/Author) for your business group or church congregation, you can contact him today at 770.814.9304 

His CPA PC…A Christian Atlanta CPA Firm: Never Underestimate the Long-Term Benefits. Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it! 

Serving Atlanta, Duluth, Gwinnett, Barrow, Bartow, Carroll, Cherokee, Clayton, Coweta,  Douglas, Fayette, Forsyth, Fulton, Gwinnett, Henry, Newton, Paulding, Pickens, Rockdale, Walton, Barrow, Bartow, Carroll, Henry, Newton, Bartow, Walton, Rockdale, Barrow, Spalding, Coweta, Dawson, Douglas, Fayette, Newton, Paulding, Spalding, Walton, Henry, Paulding, Douglas, Coweta, Canton, Covington, Douglasville, Druid Hills, East Point, Forest Park, Griffin, Lithonia, Mableton, McDonough, Milton, Mountain Park, Newnan, Powder Springs, Stockbridge, Union City, Villa Rica, Winder, Woodstock,  Smyrna, Sandy Springs, Marietta, East Point, Gainesville, Snellville, Buckhead, Buford, Peachtree City, Dunwoody, Kennesaw, Decatur, Conyers, Stone Mountain, North Fulton County, DeKalb County, Hall County, Clayton County, Cobb County, Forsyth County, Hart County, Jefferson County, Duluth, Atlanta, Alpharetta, Johns Creek, Lawrenceville, Milton, Norcross, Snellville, Roswell, Buford, Cumming, Grayson, Lake Hartwell, Suwanee, Sugar Hill, Loganville, Lilburn, Dunwoody, Gainesville, Decatur, Atlanta GA, Gwinnett County, North Fulton County, Cherokee County, DeKalb County, Hall County, Clayton County, Cobb County, Forsyth County, Hart County, Jefferson County, Duluth, Atlanta, Alpharetta, Johns Creek, Lawrenceville, Marietta, Milton, Norcross, Snellville, Roswell, Buford, Smyrna, Marietta, Cumming, Grayson, Hartwell, Suwanee, Sugar Hill, Loganville, Lilburn, East Point, Gainesville, Snellville, Buckhead, Buford, Peachtree City, Dunwoody, Kennesaw, Decatur, Conyers, Stone Mountain, Decatur. Sandy Springs, Peachtree City, Douglasville, Newnan, Griffin, Woodstock, Carrollton, Forest Park, Canton, College Park, Cartersville, McDonough, Riverdale, Fayetteville, Covington, Stockbridge, Conyers, Clarkston, Barrow, Bartow, Butts, Carroll, Cherokee, Clayton, Coweta, Dawson, and Douglas. 

Related posts:

1. Duluth/Lawrenceville/Gwinnett/Atlanta CPA on Understanding/Utilizing the Earned Income Credit to Lower Your Personal Income Tax
2. Duluth GA/Johns Creek/Suwanee CPA Advises Atlanta Business Owners/Entrepreneurs on Bookkeeping & Financial Statement Issues
3. Atlanta CPA Teaches Utilizing Tax Information To Understand Changes in Your Tax Situation
4. Award Winning Duluth/Lawrenceville/Norcross CPA Provides Bookkeeping Advice to Metro Atlanta Business Owners
5. Duluth CPA on Christian Financial Business and Money Management

This entry was posted on Tuesday, May 4th, 2010 at 4:23 pm and is filed under Atlanta IRS Tax Problems & Offer in Compromise, Atlanta Tax Problems & Tax Advocacy, Atlanta/Gwinnett Virtual CFO/Controller, Georgia S Corporations, S Corporation Elections.
Tags: Atlanta/Gwinnett CPA, Duluth/Gwinnett CPA, Gwinnett CPA, Keep Your Tax Bill As Low as Legally Possible, Lawrenceville CPA, Taxation of S Corporations, Understanding S Corporations. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.