Resources for analyzing Form of Business Entity

[S T]

Calif Annual Fee

Yes, Calif has an $800 annual fee for LLC and LP, starting first year of operation.

S Corps also $800 fee 2nd year or the corp tax whichever is greater. C Corps as well.

Sandy

[OldJack]

Ok Oldjack you got some good answers. If I have a C-Corp that earns 100K a year for instance tell me what you would do to lower the tax liability keeping in mind I want all the money for personal use. Let's say I have three employees not related.

First old Veritas.. I don't think you are from Missouri the show me state like I am. You know tax planning also has to be done in accordance with the shareholder's other income, deductions, retirement plans, and personal finances. You can't just say do this and it will work for everyone.

You say you want all the money for immediate personal use means you don't want any tax planning and you should just pay the tax on your 1040 without any tax savings. You know that, you have been around a long time in this business.

Ok using 2005 tax rates.. $100,000 taxable on a personal income tax (MFJ) is taxed for the highest dollar at the 25% tax bracket (28% for single taxpayer). For a C-corp, before planning, the highest tax bracket is 34%. However, if the C-Corp pays a W2 of $50,000 gross the 1040 is in the 15% tax bracket for the 1040 and the remaining C-corp profit is in the 15% tax bracket. Yes, I know you don't have the remaining $50,000 out of the corp.

Now as a S-corp, say you have to pay a W2 of $50,000 as reasonable salary so you have the same basic social security tax. However, when the other $50,000 profit is added to the 1040 Sch-E, you are back into the 25% income tax bracket.

Now as a C-corp, say you pay a W2 of $50,000 (although you could pay less as reasonable salary is not as big a deal as the IRS is more concerned if you pay to high a salary) and you pay the same social security tax. On the 1040 you pay in the 15% bracket. The corporation then must pay corp income tax of $15% on the retained profit. Overall you have paid only 15% tax on the $100,000 instead of in the 25% tax bracket (28% bracket Single taxpayer). True you don't have the money out of the corporation at this point unless you have reduced the profit with fringe benefits (you can find the kinds in pub 15B), retirement plans, or net operating losses created by such things as timing of sales and expenses. If you have say a $50,000 NOL in the next year you carryback for a refund of the 15% corp tax you paid thus you can now pay the cash out as 15% taxable dividends to the 1040. The end result is still an overall tax of 15% on the $100,000. Ahhh.. but you say you have a net operating loss of $50,000, yes but I said it was created by timing as the loss is recovered the first of the new year with a $50,000 profit.

The end result is the C-corp can legally "play" with timing and the numbers to continually delay the payment of taxes until they actually have a loss or buy that piece of equipment that offsets the profit. (True you can delay income with any business, but you can't balance the low tax brackets with all the income on your 1040.) In the mean time the C-corp has paid little or at least tax in the low 15% bracket so that overall the $100,000 is taxed at only 15%. Granted, if you were talking about more taxable income or the shareholder was in a higher income the percentages would be higher but the balancing of tax brackets is still a valid method of tax savings that only works with a C-corp.

Also did I mention that small business C-corps are audited less than S-corps and high income 1040 taxpayers?

Well... it might not work for you or your clients but it works for me. BTW, I also have all the other type clients, S-corps, Partnerships, Trusts, and 1040s. I just like to play with the C-corps when it fits with my client.

[S T]

What Accounting Program

Old Jack, what accounting program do you use?

I am familiar with Quickbooks and my balance sheets are fine, either if I run them or correct the client's entries, as you state. Corrections are billable and I actually make more money there than if I do the monthly accounting.

A new client contacted me this year and is using Peachtree. I can see where the inventory might be better handled by Peachtree for mfg, but what a mess a prior accountant made out of the rest of the entries or lack of entries. My only salvation has been to import into Quickbooks to find the errors and discern what the corrections might be. But then it just might be that I don't understand how Peachtree works!

Sandy

[OldJack]

Old Jack, what accounting program do you use?

Sandy, I use a couple of accounting software programs, however, I only have a few write-up clients as that is not my thing and I am on the road to retirement. I have a couple of versions of Quickbooks and an old DOS version accounting program called NewViews that will run in WindowsXP. I hate Quickbooks but use it to receive data CD's from a few clients so I can look at their books and make adjustments. I do like the export to excel feature for one of my real estate rehab client that needed to prepare a special detail report of all transaction for government historical building tax credits. I have one client that uses the Online version of Quickbooks and that is great as I can log onto his books anytime I wish and make adjustments. The online version is about the same cost as buying the upgrades each year and the client has no need to do anything but enter his data.

My thing is going to a clients business locations that have data processing systems or manual bookkeeping systems, and auditing/reviewing their books so I can give them adjustments, prepare financial statements, and as a end result prepare their business tax tax return and executive 1040s. I do tax returns with ATX-Max program (1120,1120S,1065,1041,1040,706,W2, 941, 940, State, City, etc.) and for a couple of clients that like to enter their own 1040 data they email me a turbotax file so I use turbotax.

I only do a small number of 1040s but some take an entire day to prepare with as many as 30+ pages. Large number of Sch-D and Sch-B transactions with most 1040s.

Its been several year since I reviewed and looked at Peachtree, so I am sure it has changed enough that I can't really talk about it.