Accounting News and Notes

LLC’s can Legally Convert to an S Corporation Saving Thousands Annually

LLC’s came in vogue approximately fifteen years ago when the the state of Georgia enacted legislation allowing both LLC’s (Limited Liability Company’s) 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 have been incurred if the business is 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 these taxes reflected on W-2’s. Tax law allows an LLC to legally convert over to being an S Corporation, for tax services,  as long as all active employee/owners pay their-selves 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.

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.

Recently, several corporations registered with the Corporations Division of the Office of the Secretary of State received a letter from Georgia Corporate Compliance, a private company offering to complete corporation meeting minutes on behalf of registered corporations. Although these forms contained a disclaimer stating that the company was not affiliated or endorsed by any government agency, many customers were understandably confused by the official looking documents.

The forms provided by Georgia Corporate Compliance are not required by the Office of the Secretary of State and will not affect your corporate filing positively or negatively. There is no need for a corporation to use Georgia Corporate Compliance or any other business offering similar services for any reason unless the corporation chooses to do so.  The Office of the Secretary of State does not require the use of any businesses offering services like those apparently offered by Georgia Corporate Compliance.

It is important to remember that any official statement or request from the Office of the Secretary of State will clearly indicate its origin by displaying the State Seal and the name of Secretary of State Karen Handel.  

If corporate customers have any other questions, please call the Georgia Secretary of States Corporations Division Call Center at 404-656-2817.

Now that April 15th has come and gone, it is time to dig deep down and pull all of your personal information together.  If you are among the millions who extended the due date of filing their return legally from April 15 to October 15th, you should be in no less of a rush to file and pay all 2007 taxes because:

• A delay to file is not a delay to pay as both the IRS and individual states access a late payment fee/penalty and interest for all monies paid after April 15th
• Now is the time to see what you can begin to do to legally lower your 2008 tax bill rather than being past oriented.  There’s a reason for many success’s of business owners and that is their ability to think and plan ahead.  A good steward is always contemplating what comes next and how to always be prepared.

Tax planning is not for the meek or ill prepared so be sure to get all past filings done today so that you can focus on the success’s and planning for 2008 and beyond.

You’ve done the hard part…got all your info to the CPA, listened to the barrage of questions that they had about this expense and that, got your return finished, signed off on it and put it in the mail well before the 15th of April…shouldn’t it be time to cash that refund check and take a vacation?  You could if you HAD that refund check, right?  If you are spending your days, waiting patiently/anxiously for that little orange envelope to show up with your tax refund, wait no more.  You can find out the status of your tax refund simply by going to the IRS website by following the link:  https://sa1.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp or simply www.irs.gov and click on the “Where’s my refund?” section.  Regardless of whether you split your refund into several accounts, opted for direct deposit or asked that your check be mailed directly to you, you can track your refund.  To maintain confidentiality, you will be required to provide them with some information before getting your status.  You will need:  your social security number, filing status (married, head of household, etc.), and exact amount of your refund.

If, after 28 days of the IRS mail date, you haven’t received your refund check, you should start a refund trace.  If your address is incorrect, you can change it online but always be sure and check that before you mail your return into the IRS to avoid any delays in getting your refund. 

 DON’T FALL FOR E-MAIL SCAMS ABOUT YOUR REFUND!!!!  The IRS never initiates e-mails about your refund and never give out your social security number!!!  Have a great “refund” vacation!!

The United States Congress passed and President George W. Bush signed into law the Economic Stimulus Act of 2008.  This Act provides for economic stimulus payments to be made to over 130 million American households, and you may be entitled to a payment of up to $600 ($1,200 if filing a joint return), plus additional amounts for each qualifying child.  The IRS says it will begin sending the one-time payments starting in May. 

There are basically three types of taxpayers who will be affected:

• Those that file their tax return for 2007
• Those that don’t file a return but have a total earned income of $3,000 or more
• Those with adjusted gross income

Affects of Economic Stimulus Act

• For the taxpayer who files annual returns, to receive a payment in 2008, you will not have to do anything more than file a 2007 tax return.  Of course, the IRS will determine your eligibility and amount of payment.

•  For those that don’t have to file a return that have a total of $3,000 or more in earned income, Social Security benefits, and/or Veterans payments, you may receive a payment of around $300 ($600 if filing jointly).  You might also receive an additional amount of $300 for each child that qualifies for the child tax credit. 

• For the taxpayer with adjusted gross income (AGI) of more than $75,000 ($150,000 if filing jointly), the payment will be reduced or phased out completely.

Important things to know about the Economic Stimulus Act of 2008:

• To qualify for payment, an individual, spouse and any qualifying child must have a valid Social Security number.
• Individuals cannot receive a payment if they can be claimed as a dependent of another taxpayer.
• Individuals cannot receive a payment if they filed a 2007 Form 1040NR, 1040NR-EZ, 1040-PR or 1040-SS.
• All individuals receiving payments will receive a notice and additional information before you receive the payment.  If you have questions, you can visit the IRS website at www.irs.gov.

 For any other questions, contact me at hiscpa@yahoo.com

There is an upcoming bond issue concerning the Gwinnett County Schools on February 5th.  Many of us will be going to the pools to pick our presidential nominee and we need to get out the vote to continue SPLOST. This past November Gwinnett County Board of Education approved a calling for voters to evaluate a General Obligation Bond referendum on the upcoming Georgia Presidential Preference Primary. If it passes, Gwinnett voters will authorize the School Board to sell $750 million in tax-exempt, General Obligation Bonds. The repayment of the bonds will be paid off using the present personal property millage rates.

The Gwinnett County School system is facing a funding crisis and our school board is offering a direction to its voters to meet that crisis head on.  Voting yes on SPLOST will help keep Gwinnett’s school progress on track. Since July 1, 2007 thirty new schools have been built providing over 2000 new classrooms.

In the last decade, funding for the ever-expanding Gwinnett school age population has been met with both property taxes and monies from SPLOST.  But growth in Gwinnett county’s population has far exceeding the schools growth and the school board is suggesting the bond issue continue so that they can meet the demands of the growing population by constructing new schools and adding on to existing ones. To read more about the program visit www.gwinnett.k12.ga.us

Keeping this program in tact depends on you. Please vote to continue school funding with school bonds.  Our children’s education depends on it!

Incorporating in Georgia is still the most important decision for all initial business owners. If you have developed your business model, written your business plan, and are now ready to set about the task of actually beginning your business you will want to take care care of this critical tax step. Although you are not indefinitely locked in to a entity choice as an LLC or a C Corporation can elect to be an S Corporation and an S Corporation can become a C Corporation, you initial election is most apt to be the most critical business choice you can make.

While being an LLC or LLP can be most advantages for a law firm or multiple physicians practice, these selections will generally pay more in taxes than an S Corporation as all of their net earnings are subject to FICA/Medicaid taxes while only ones W-2 from an S Corporation would be. I would suggest all multiple physician practices greatly consider the advantages of an LLC or LLP can bring as professional liability statutes allow them to be responsible for professional liability. However a normal tort issue/civil liability cannot be assessed personally so these same concerns will not be of importance to a retail, commercial, wholesaler, distributor, etc. as they would not be subject to professional liability statutes. Real estate ventures are often well suited to considering whether being an LLC,  LLP, or partnership might be in their best interests as you can move real estate both in and out of these entities without any gains being recorded and taxed.

For those looking to consider setting up an S Corporation there are four basic requirements which include being an U.S. citizen or registered alien, having one class of stock, having a calendar year-end, and having less than 100 shareholders. S Corporations continue to be a popular choice among many who do not need/have to be another entity type because of the nature of their operations or needs.

Incorporating is not for the faint of hear so be sure to consult with your CPA to get started as well as periodically to ensure that the entity selection you are presently using is best for you and your business, your tax bill, and legal liability limitation issues.

Now is the time to be pulling together all of the information you will need to prepare your personal return which is due April 15th. Care and due diligence should be exercised to ensure that you have all of the information that you will need to process to prepare both an accurate and timely return. It is recommended that you put all of the information that you will need to prepare your returns in a specific file for preparation of taxes and that you utilize a checklist to ensure that will have all of the information you will need to prepare your returns. The best source of what you will need for this year is a check of your prior years return and then to compare it to any changes that happened during the year such as a new child, starting a new business, moving, or any other expenses/income which will have potential tax consequences. It is always best to list all potential items for a tax review so that they might best apprise of what is taxable and deductible. In this way you are most apt to pick up all of the items you will need to file a just and fair return.

As each every taxpayer is unique it is best to re-visit this list several times annually to stay abreast of what all will be needed by year end. Also, it is well to be reminded that the IRS as well as individual states expect that the taxes due them are due as you earn the money and that otherwise (unless you meet certain very limited exceptions) that late payment will result in additional penalties and interest being assessed. So plan early and plan often so you might avoid the last minute rush and perhaps the filing of an incomplete return.

The IRS has announced that beginning January 1, 2008 that the standard mileage rate for business use of a personal car/van/pickup/or panel trucks will be 50.5 cents per mile.

The standard mileage rate is affixed annually based upon a study of the variable and fixed costs of the annual cost of operating a vehicle. The 2008 rate for moving or medical expenses will be 19 cents per mile and 14 cents per mile driven when doing work for charitable organizations. The 2008 mileage rate of 50.5 cents per mile is up from the 2007 rate pf 48.5 cents per mile.

The Internal Revenue Service is working with taxpayers, consumer agencies, and other regulatory agencies to help stop identity theft. Recently scammers have begun to utilize the Internet to steal both your identity and your assets. Fraudulent use of the Internet to steal your identity is called phishing.

Suspicious e-mail is where a scammer uses messages luring potential victims into releasing their confidential personal information which can then be used to steal a victims’ identity. This fishing for information has gained wide popularity recently as fraudsters attempt to gain access to your bank account, credit card, and date of birth information that they can then use to gain access to your personal accounts and even apply for new loans in the victims’ name. The IRS has recently discovered an e-mail scheme whereby phony e-mails are sent pretending to be from the IRS luring the unsuspecting victim by stating they are due a tax refund. To discover sources/examples of items to help protect you from unscrupulous schemes visit:

• Sample of a suspicious/phishing e-mail
• Is it a phishing Web site?
• How to Protect Yourself from Suspicious E-Mails or Phishing Schemes

Stopping Internet fraud of all types is something in which you can take an active role. By turning in Phishing Schemes to the IRS at phishing@irs.gov. There you can follow the links to reporting suspicious e-mails which the IRS will then utilize to trace the hosting Web site and to help shut down fraudulent sites.

Identity Theft can occur through any myriad of ways by stealing of your personal mail, phone and fax records, and the stealing of your trash. Identity Theft is when a thief utilizes your personal data such as your Social Security number or name to commit financial fraud. Usually this type of theft results in a victims’ bank accounts being emptied, obtaining unauthorized credit cards, and even new loans in the victims name. Those who are unduly have their identity stolen often spend untold months striving to protect their credit and their good name. Often the wake of the crime itself leaves victims unable to get loans they would otherwise qualify for and to be harassed for actions they did not commit. You can call the TIGTA toll-free hot-line at 1-800-366-4484 or visiting the TIGTA Web site to report phishing schemes and to report fraudulent misuse of the IRS name and logo. Also you can learn more about what can be done by visiting:

Stopping Identity Theft is something we can all do to help make the Internet as well as our families, homes, and financial future a safe place for us all.