- May 01st, 2013
- John Dillard
- Income Tax Preparation of Corporate & Personal Income Taxes, Incorporating in Georgia & Entity Selection, Virtual CFO, Business/Tax/Financial Consulting, Business Loans/Money Management
- 0 Comments
Whether you are a new business that is or an C Corporation, a unincorporated proprietorship or an LLC you can change entity types for tax purposes which may result in a lower tax obligation.
LLC’s came in vogue when Georgia enacted legislation allowing an LLC (Limited Liability Company) to be established. Although the LLC does allow for some greater flexibility and ease of operation it often results in a higher tax obligation that might not have been incurred if the business was an S Corporation.
Tax law treats all the earned income from an LLC as being subject to both FICA & Medicaid taxes whereas an S Corporation has to pay those taxes reflected on W-2’s. For tax purposes, the law allows an S Corporation to legally convert to being an S Corporation as long as all active employee/owners pay themselves a fair and reasonable salary. This number is best determined by the facts, position, and profit of a business and the truest test of this calculation is what a business owner would have to pay someone else to perform their position. All businesses are unique and therefore all saving opportunities are different. But even the smallest of businesses with the smallest of profits may save several thousand dollars by converting from an LLC to an S Corporation.
There are only four rules to qualify for being an S Corporation. You must: -Have a December 31st year-end. -Have less than 100 shareholders. -Have shareholders who are U.S. citizens or resident aliens. -Have only one class of stock.
Becoming an S Corporation is often a prudent decision for the following types of business:
-Trade Contractors such as builders, painters, landscapers, electricians, plumbers, etc.
-Retail shops such as boutiques, restaurants, clothing stores, furniture, appliances, video equipment, etc.
-Computer technicians such as contractors, retailers, repairs, programmers, etc.
-Sales Representatives including residential and commercial real estate agents, brokers, including those of most all types and territories.
-Distribution companies, resellers, wholesalers, and those in the distribution chain of a product of service.
-Service companies including consultants of all types, single owner physicians, dentists, doctors, chiropractors, etc.
We offer a free initial consultation to see if converting your business to an S Corporation for tax purposes makes sense to you. Put our decades of experience to work for you ensuring you pay your lowest legal possible tax. Choosing an Entity Type for Your New Business
Your initial choice of entity is perhaps the most important tax, financial and legal decision you might ever reach. Being well versed in these areas is essential to a wise and prudent decision. To learn more visit http://www.hiscpa.com/article2.html
Tax Effects of Entity Choice when Incorporating in Georgia
Carefully considering the tax effects of your entity choice is essential to getting your business off on the right foot. Being careful to avoid, if at all possible, the double taxation of C Corporations and then selecting the right entity for your business from both a tax and legal perspective is critical. To see an example of the tax effects of entity choice visit http://www.hiscpa.com/article6.html
Top 10 Things to Consider When Incorporating in Georgia http://www.hiscpa.com/blog/2012/01/13/top-10-things-to-consider-when-incorporating-georgia/
John Dillard, CPA of His CPA, PC, 1940 Woods River Lane, Duluth, GA 30097 Phone 770-814-9304 www.HisCPA.com A Christian CPA Firm
Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!