Businesses are closing due to the economy. Businesses are closing due to poor management. As a financial advisor for hundreds of businesses over the years, I have noticed a pattern for those businesses that have succeeded and those that have not. Frequently, it has to do with the owner not being in the right entity or taking advantage of the entity benefits. Let me share some truths of what I see.
CEO needs to understand about their entity
When a business fails, I have noticed that the business owner has not taken the time to understand how to use their entity. There is no strategy. Usually the owner is so distracted with running the business that they do not realize that getting advice could save his or her company thousands of dollars in taxes. How would you like to save $26,000 in taxes in just one year? Keep reading and learn how one client did.
Are you a sole proprietor? An LLC? An S-corp or C-corp? Each entity has its advantages as well as their responsibilities.
Benefits of entity
There are so many benefits in running a business. You can write off expenses that a typical W-2 wage earner cannot. For example, you can write off part of your cell phone or an area in your home that qualifies as a home office. You can write off business miles; however, miles used in commuting to your job are not deductible.
Here are some general benefits for each entity below:
Sole Proprietor:
- Great home office deduction
- Easy to set up, run and close business
- Losses offset other income
- Hire children and no FUTA and Social Security taxes
S-corporation:
- Losses offset other income
- No self-employment tax when the company is profitable
- Good home office deduction, especially if you rent
C-corporation:
- Great accountable plan for medical expenses
- Fiscal year option
- Fringe benefits: insurance, education, company-owned cars and more
So the above describes the benefits for the different entities. Check out part two of the article coming later this month that will cover responsibilities, how you should set up your chart of accounts and general comments of how you can save thousands of dollars in taxes. If you want more information, I would be glad to provide you a 4 page entity chart – just email me at renee@adminbooks.com to request it!
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Great article, Renee. Business entity self-awareness is key, especially from an IT consulting standpoint.
And especially from higher up on the chain – when you have the top decision makers aware of what their entity is exactly, you increase the odds of securing the right help for each unique IT requirement. You can read more at http://www.thetechinfogroup.com/blog/Selecting-IT-Consulting-Company-in-Los-Angeles.html