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Which Business Entity Is Right For My Business?

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By Debbie Gregory.

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Whether you are just starting a business or thinking of changing your business structure, a common first step is comparing the types of business structures. While a Limited Liability Company, a C Corporation and an S Corporation share some characteristics, they also have distinct differences. You should spend the time getting familiar with each type before deciding which one might be right for you.

Most small businesses are usually either a sole proprietorship or simple partnership. In both of these cases, the business taxes are part of the individual’s taxes. There are three major types of business entities that classify the business as its own “person”– a C Corporation, an S Corporation, and an LLC (Limited Liability Company).

Some business and certain tax rules are unique to the type of entity that you choose for your business. Read below for more information on each and always check with your accountant.

 

C Corporations

A C Corporation is taxed at a flat 21% regardless of how much business they conduct or money they make. Additionally, C Corporations help create personal liability protection for the owners of the business. They are designated to the public with extensions such as inc, corp, or ltd.

This type of corporation can issue stocks that when held for more than five years, they entitle the seller to tax-free gains. Raising capital is also very easy for a C Corporation as compared to the other business types because they issue stock in exchange for the funds raised.

The major downside to a C Corporation is double taxation. All business earnings are taxed and paid for by the business however, the income received by the business owners is not deductible and they must claim and pay income taxes on the salary they take from the business on their personal taxes.

C Corporations are separate taxpaying entities and file their own very specific tax forms every year to the IRS.   These C Corporations can actually choose to be taxed as an S Corporation to help offset the double taxation by utilizing income pass-through to the owners, so they report their share on their personal taxes. This way the business and the business owners pay between 10 and 37% depending on the individual.

 

S Corporations

S Corporations also help create personal liability protection for the owners of the business. They are designated to the public with extensions such as inc, corp, or ltd – the same as C Corporations. An S Corporation also has the ability to allow up to 20% total business income deductions.

S Corporations are required by law to adopt and maintain certain formalities and they have extensive rules in place for how the business can be managed. They include by-laws, operating agreements, issuing stocks, membership shares, holding director and shareholder meetings, keeping meeting minutes and other extensive records.

 

LLC (Limited Liability Company)

An LLC has many advantages for business owners. As an LLC, you can elect to be taxed at the flat C Corporation rate, which can be very beneficial if the business owner is not qualified to use certain income deductions. This type of business entity also helps you avoid the double taxation issue of the C Corporation as the LLC is taxed a lot more like a sole proprietorship. This type of business also provides you good liability protection and some pass-through taxation, just like the C and S Corporations.

Another benefit of the LLC structure to a startup is that once you have set it up, there is not any need for continual maintenance. It is also easy to add new partners or sell interest in the entity to someone else.   An LLC can have an unlimited number of members whereas S or C Corporations can only have a maximum of 100.

The downside to an LLC is that there is a minimum tax regardless of how much business you conduct. If you make zero dollars or ten thousand dollars you still owe that minimum tax.

 

The choice of business entity is a complex matter and you need to take into consideration both state and federal tax matters as well as any other issues and non-tax considerations (personal liability protection, raising capital, etc.). As with any major changes to the overall structure of your business, as well as the tax implications of any changes, we highly recommend consulting a tax, financial, and/or business professional before making any changes.

Avoiding Business Tax-Related Identity Theft

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By Debbie Gregory.

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Identity thieves are constantly looking for and creating new scams to utilize other people’s information to their financial advantage. Tax-related identity theft broadens the criminal’s choices for fraud. Utilizing a business’s tax identification number instead of an individual’s social security number allows the criminal to file fraudulent business taxes, claim fraudulent tax credits, or obtain any number of business-related tax benefits.

 

How can you tell if your business is being used in a fraudulent way?

It is essential to understand that just like personal identity theft, when anyone’s identity can be stolen at almost any time, a business is just as vulnerable. Here are a few ways to tell if your business’s identity has been stolen:

  • You try to file your business taxes and they are rejected by the IRS for “duplicate filings” yet you had not previously filed
  • Your extension request has been rejected for a similar reason
  • You receive an unexpected tax document with incorrect information

 

How can you safeguard your information?

There are many ways you can safeguard your information including these tips:

  • Always use reputable tax professionals if you hire someone to do your taxes for you. Make sure that your professional is also diligently keeping your information safe.
  • Look for a CPA who has training or certification in cyber security.
  • Never share your passwords, security number, credit card numbers, or any other sensitive information with anyone that does not absolutely need to have this information.
  • Be very wary of any email asking you for personal information.
  • Never click on a link in an email that seems even slightly suspicious. Remember that the IRS is not going to email you that they will conduct an audit or something of that nature.
  • Keep a close eye on your credit score.
  • Never write your entire account number when paying for something with a check.
  • Always shred documents that you do not need, don’t just toss them out. Criminals routinely go through trash bins looking for sensitive documents.

 

A Huge Red Flag:

Most emails sent by scammers contain quite a lot of misspelled words and terrible English grammar. A professional company or government agency is much more careful when communicating with their clients.

 

Worried something is amiss?

Immediately file a fraud alert on yours or your business’s credit report by calling Equifax (888-766-0008), TransUnion (800-680-7289) or Experian (888-397-3742). After you have filed your reports, make sure that you directly call the issuers of any credit cards that you feel may have been impacted.

Does Your Small Business Have a Retirement Plan?

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By Debbie Gregory.

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Small businesses generally don’t think they are able the to provide their employees with a retirement plan. Business owners are financially pulled in a multitude of different directions including wages, raises, bonuses, new equipment, new locations, marketing, hiring, training, and more. Large corporations understand that an attractive benefit package helps retain employees and saves them the costs of hiring and training a new employee. It makes a great deal of  business sense to include a retirement savings plan with your other benefit offerings for your employees.

 

Why does My Business Need a Retirement Plan?

If you currently don’t offer retirement there are three reasons why you should:

  1. As the owner you may be thinking of selling your business to fund your retirement and perhaps when the time comes to sell, the value of the business may not be as much as you anticipated and funds necessary for a robust retirement.
  2. Contributions to employee retirement plans are tax-deductible for the business.
  3. One of the greatest benefits for an employee is retirement savings. They will often stay with a company longer if they are offered attractive benefits and this helps you compete against companies that want to hire your valuable employees.

 

How To Select A Plan?

The best way to choose the appropriate retirement plan for your company is to sit down with a specialist and go review options. There is not a one-size-fits-all plan. There are so many different types of plans available including IRA-based plans, defined contribution plans (401Ks), and pensions. Some of these plans are more expensive for the company than others so it is best to consult a professional.

 

Once you have decided to offer retirement benefits and you have selected the right plan with a professional financial advisor, it is time to inform your employees of their eligibility to participate in the plan. Each plan has its own specific rules for informing your employees of their eligibility (the financial institution will provide the specifics based on the plan you select).

Some of the information you generally need to provide your employees includes:

  • the time frame to enroll in the plan,
  • any costs or salary reduction on the employee’s part,
  • how much the employer will contribute on an annual basis,
  • an official description of the plan from the financial institution it will be with,
  • a notice about balance transfer if the employee leaves the company or chooses to move the account to a different financial institution.

 

As most businesses know finding and keeping good employees is expensive and time consuming. Offering good incentives, such as a retirement savings plan, helps retain good employees which can save your company money in the long run. Plus, as a business owner you need to take care of your own retirement beyond the hope that your company will sell for enough to keep you comfortable once you choose to stop working.

The Importance of Social Capital

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social capital

 

By Debbie Gregory.

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Social capital refers to the connections and shared values between people that enable more cooperation and growth than one person can do alone. When you have taken the time to develop a wealth of social capital you will easily obtain any other resource that you need.

 

1.)  It Should be Natural Networking

Networking can be unpleasant for most people, but it is truly important to be successful. The best is to start small and be patient. Let the relationship grow naturally by being honest and authentic and show the people that you value them. Start with your own friends, family, and coworkers. Find others in your field that you look up to and connect with them. Just remember to be authentic – don’t put on a fake persona, eventually they will see through it and be less than pleased.

 

2.) It Establishes You As A Leader

Offering advice or resources to other people without expecting something in return builds trust and establishes your reputation as an upstanding person in your field. If the assistance is helpful, you place yourself as an honorable and knowledgeable person in your field.

 

3.) It Creates Strong Teams

Social capital is not limited to those who you know personally, who work with you, or those in your company. You can, and should, extend your network as far as you can. Nurturing a wide ranging network will provide you more resources to look to for solving a greater variety of issues.

 

4.) It Makes People Want to Help You

Once you have provided helpful support and advice to others in your network, they will want to give it back when you need the assistance. Most people genuinely like helping others – especially if they have been helped at some point by that person. Never be afraid to ask for assistance when needed from the network you are carefully creating. It you don’t ask, you don’t get.

 

Other tips to build social capital:

  • Be honest and do not shy away from hard truths. People value honesty.
  • Help connect others together.
  • Contribute to debates.
  • Actively contribute in your chosen field.
  • Support other people when they need it.
  • Help others in your network with their work.

 

As the saying goes – every entrepreneur needs three kinds of capital: financial, human, and social. The financial is easy – the other two take a lot of work. Take the time to build your social capital and both you and your Veteran or Military owned business will reap the rewards.

Is A Consulting Business Right For You?

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By Debbie Gregory.

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A lot of people feel that they lack the training or expertise necessary to become a consultant. They feel that in order to be a consultant that they need to be an “expert” in one given field. Consulting is one of the best ways to be your own boss. You can work one-on-one with clients, provide online training, give talks or seminars, or combine them all. A consulting business can be started with very little capital, very little overhead, and a handful of clients. Thinking about a career in consulting? Do these four traits describe you?

 

1.) Are You Already Successfully Consulting?

If you have some experience and are continuing to learn in your chosen field, even one or two small successes can help build your credibility and lay the foundations for your solo consulting career. Each individual case that you work on provides you additional tools that to help a client solve his or her challenges.

 

2.) Do You Enjoy Helping Others Succeed?

The best consultants are compassionate and sensitive to the needs of their clients. They seek to understand the individual issues facing their clients and then use this knowledge to help them find the tools for success.  A consultant is teacher. You cannot show up for a client and solve their problems for them. Your job is to give them the tools that they need to succeed without you holding their hand. A true and honest desire to share your knowledge, expertise, and experience is a clear indicator that a career in consulting could be the right path for you.

 

3.)  Are You Someone Who Genuinely Loves to Learn?

To be successful as a consultant you must always be learning. You will start with a good grasp of knowledge about your particular field but you must be able to quickly gain knowledge of your client’s business, and their industry as a whole, in order to help them maintain their credibility (as well as yours). Learning can take place in many ways – you can sit and learn from the client themselves, or read about their industry, learn about their competition, speak with their team members, speak with their customers – basically find as many ways as possible to gain insight into each client’s specific field.

 

4.) Do You Thrive on Variety Each Day?

For the 9-5 crowd their day very rarely differs much from day-to-day. The routine is roughly similar day in and day out.  Even when projects change, they are dealing with the same team, the same target audience, the same products, and so forth. People who make the best consultants crave new experiences and unique challenges that working with clients in all types of fields bring to their day.  They strive to be the problem solver who finds new solutions to various new issues each and every day.

 

Being a consultant and running your own business is not for everyone. It is drastically different than the traditional 9-5 where you are working for someone else; thus it comes with its own challenges but it also comes with a lot more rewards. There is a good chance that if you have the traits listed above you already have everything that you need to make a successful career out of consulting.

Consulting is an excellent fit for both Veterans and Military Spouses and can be done remotely.

 

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