How Business Structure Affects Taxes

One question that I often hear is what type of business organization should I choose and how business structure affects tax.  While reading Accounting Today, which I am sure that all of you do, I saw this infographic (How Business Structure Affects Taxes) recently and thought it was a great reference for a small business owner.  In addition, I am working on a new series for business structures that will come out in a few weeks.

The online accounting education site Accounting Degree Review recently created an infographic on “How Business Structure Affects Taxes,” comparing the benefits and requirements of various entity types such as sole proprietorships, partnerships, C corporations, S corporations, LLCs and cooperatives.

You can check it out at this link or below.

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Three Awesome Reasons to Choose the S Corporation

I don’t know about you guys but has anyone else searched the internet endlessly for how to choose to between an LLC, C Corporation, or an S Corporation?

I know that I have typed in LLC vs. C Corporation vs. S Corporation many times into google or youtube but always come away conflicted.

If you want to take action and get started quickly then an LLC is the easiest, cheapest, and fastest way.  However, I have tried to make a case that more often than not the S Corporation is the more appropriate choice if you plan on growing your business.

Three Awesome Reasons to Choose the S Corporation

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Inherited Annuity Tax Implications

Inherited an annuity and now trying to figure out the inherited annuity tax implications?  First of all I am sorry for your loss as my family has just experienced this very scenario.    

The first thing to understand is the common feature of all annuities.  A portion of the annuity income is considered a return of your investment principle and is nontaxable. As a result, the earnings from the annuity are treated as taxable income.  

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Standard Business Mileage Rate

The standard business mileage rate can result in one of the biggest deduction that a small business owner can realize.  Usually, the standard mileage rate will create a larger deduction than the actual costs of operating a car.  The problem is that we are all to lazy to keep the required mileage log.  To help I have included a link to an excel template that takes into account the yearly mileage rate changes.  Before we get to that point lets make sure we understand some concepts.

Two Options of Vehicle Deductions – Standard Business Mileage Rate vs. Actual Expenses

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Gift Tax Annual Exclusion Demystified…..Maybe ?

Gift Tax Annual Exclusion

The gift tax annual exclusion are one of the most misunderstood and complicated concepts of taxes. The most common confusion surrounds who pays the gift tax.  With that said I want to define gift taxes from the donee (receiver) and the donor (giver) in order to further your understanding. 

The donee (receiver) of a gift is not taxable (Tax Code Sec 102(a) and IRS Publication 525).  However, income earned from the gift after you receive it is taxable.  For example, if the gift you receive this way later produces income such as interest, dividends, or rents, that income is taxable to you. If property is given to a trust and the income from it is paid, credited, or distributed to you, that income is also taxable to you.

How to Figure the Gift Tax Annual Exclusion

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Does a partnership or corporation have to file a tax return even though it had no income for the year?

Say you start a new partnership or corporation in October or November but don’t actually start business operations until the next calendar year.  Or how about you have a business in a transition period where the is no income for the current year.

Do you have to file a tax return even though it had no income for the year?

In both cases you are most likely required to file a tax return even though the business had no income for the current year.  Unfortunately, this does cause some confusion for many small business owners but in general partnerships and corporations have different standards for filing an income tax return.

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Charities Protect Your Donors With The “Magic Blurb”

Bottom Line:  Non-Profit organizations (i.e. Churches and Charities) must ensure that they protect their donors by including the “magic blurb” stating that no goods or services were provided in exchange for the donor’s contributions no later than January 31 of the year following the donation.

What does It Mean:  In a recent tax court case a Texas couple, the Durden’s, were denied a deduction for a $25,171 cash contribution to their church. As customary the church sent the couple a letter acknowledging the charitable gift in January however the Church failed to include the “magic blurb.”  When the Durden’s were audited, they produced this statement to the IRS and were denied the deduction. Later, the church produced a second statement that included the proper wording however the tax court ruled that the statement was not received by the due date for filing the Durden’s original return for the year. In the end, the tax court sided with the IRS due to the fact that the Durden’s did not have the proper receipts to take the deduction.

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How to Use Per Diem Rates for Small Business

Small business owners are always trying to make their lives easier and efficient.  Who could blame them.  This article aims to explore the entrepreneurs option to use per diem rates while traveling.

Basically there are two ways one can deduct travel expenses.

  1. The actual cost of meals, incidental expenses, and lodging can be deducted provided that the taxpayer can substantiate the expenses with the amount, time, place, and business purpose.
  2. The taxpayer can elect to deduct the expenses at the federal per diem rate, in which such an amount is deemed substantiated provided it meets the business purpose requirement.

Keep in mind, that there are some quirks relating to certain small business entity.  Of course, I am sure you didn’t expect the per diem to be simple and easy.  However, if you can take advantage of per diem rate then why not make life easier

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