Business owners have so many decisions to make, but understanding taxes is something that should be explored year-round with a qualified accountant.
Jefferson City, Missouri (PRWEB) June 29, 2016
Bert Doerhoff CPA, founder of AccuBiz, recently discussed a Small Business Trends article highlighting the various types of business structures and how each can impact what the business pays in taxes.
Doerhoff pointed out that when business owners first open their doors, they are excited about their product and put a lot of effort in marketing to get them off the ground. However, business owners need to work with their accountants to gain efficiencies, and it’s not something they think about until tax time.
“When it is time to file a tax return,” Doerhoff said, “some accountants ask a lot of questions the business owner feels are an invasion of privacy. In reality, the answers to those questions can mean thousands of dollars in additional or saved taxes depending on the situation.”
Doerhoff emphasized that a business should always be run to maximize profits. However, a few key decisions can be the difference between success and failure when it comes to protecting assets and minimizing the share of your profits that go to taxes.
“Spend some time on the front end so you understand how those decisions can help your business,” Doerhoff advises.
Doerhoff stated the most basic business structure is a sole proprietorship, which means the sole owner of the company is fully responsible for assets and liabilities. The advantage is that there are little to no legal costs, and the owner has full control over the business and makes all the decisions. However, there is no distinction between the owner and the business, which means if the business fails, it could involve personal assets. Fortunately, filing taxes is extremely simple as the business income and loses are part of the owner’s personal return.
Another structure to consider is partnerships, which come in three different forms: general, limited and joint. Partnerships register with the IRS and file annual information about their business every year. They are also liable to pay employment taxes and excise taxes. Furthermore, partners pay income tax, self-employment tax and estimated tax.
One of the more popular structures is the limited liability company, because it provides legal flexibility and tax efficiencies. Company owners are protected under this structure and they have limited record-keeping responsibilities. However, the IRS doesn’t view an LLC as its own tax entity, which means the members of the company are considered self-employed.
Larger businesses are often taking the corporation route, which is an independent legal entity owned by shareholders. Shareholders and members of the corporation have limited liability for company debts, which is a perk. However, corporations pay federal, state and local taxes.
Finally, operating under an S corporation requires that the owners be taxed on a personal level. The owners do enjoy limited personal financial liability, and any profit or loss can also go through their personal tax returns. This means that only the corporation’s shareholders are paying taxes. Because the wages paid to employees are subject to an employment tax, there can be a great amount of tax savings. Also, employee expenses can be written off as a business expense.
“Business owners have so many decisions to make, but understanding taxes is something that should be explored year-round with a qualified accountant,” says Doerhoff.
About Bert Doerhoff:
Bert Doerhoff, CPA, works closely with small business owners to minimize income tax and fill the gaps so the owner has more time to work on the customer centered core services. Doerhoff and his team can outsource all functions of an accounting department, from bookkeeping to CFO services. The CPA firm has multiple QuickBooks advisors to help clients maximize the benefits provided by their accounting system. Doerhoff is co-author of Six Steps to Small Business Success available on Amazon. Contact Bert Doerhoff, CPA, by email at bdcpa(at)AccuBiz(dot)net; by phone at (573) 634-4006; or learn more at http://www.AccuBiz.net.