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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Revenue vs Deferred Income – What does this mean to a small business owner?

There is sometimes confusion concerning financial statement terms for revenue vs deferred income.  Ok, who am I kidding there is always confusion on revenue vs deferred income for small business owners.   Depending on the business model chosen the terms can be essential in understanding how to recognize revenue.  So the question is: what should a small business owner understand when talking to their accountant?

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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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