Organizational Set-up???

[gordywest]

I am interested in hearing how you guys have your practices organized...especially for those of you that started out like I have...(just me) and your practice grew and expanded into what you have now...what are some of your backgrounds and how have you set up your practice (LLC, C-Corp, S-Corp, Partnership, etc.)...

My story is...in TY1999, I worked for HRB and saw how they preyed on the poor and uneducated ("...and don't forget to offer them our great 'Peace of Mind' package")...I went into business for myself doing taxes for friends and family members...and now through referrals, I'm over 75 clients...I am a teacher and wanted to slowly grow my client base so that when I retired, I would have some additional income along with as much or as little work as I wanted...well, things are growing, and I have found that small businesses are dying for legitimate (and honest) bookkeepers/tax preparers...but I have come to the realization that I really need to get off my keyster and get my EA designation...

In the few short weeks that I have been a part of this board, I have really received an education and respect the people on this site! I would appreciate any tips on moving my business even further...especially in setting up organizationally...

Thank you in advance!

[Snaggletooth]

Doing it Right

I don't know that I am a good audience for your question, because it presumes that the reader started off slow and grew to a robust size with lots of clerks and preparers working for me.

Hardly the case. I guess I started off slow and tapered off. But I was determined to give these people something they were NOT getting at the big tax prep firms. In my case, it was eye-to-eye contact, an interview every year, where information was drug out of each client to help reduce his taxes. I also would go the second mile with them as far as being aggressive on positions, and did not operate in mortal fear of the IRS. I am still a sole proprietor and have no help except Callie. At one time I grew to over 250 returns (very few of them were short forms), and had to have some relief, and sold off half my volume.

It sounds like I grew just like you are - I would say you are doing it right. And yes, I think an E A certificate would help.

[erchess]

Organzation of Business

Snags didn't say anything about this and I think it could be important to you. I think you should start by reading what TTB has to say on Business Entities. Once you have read that two or three times then I think you should go to a tax attorney in your state and ask for e recommendation after discussion of your present activities and future plans. You might like to get two or three opinions. If you choose to be anything other than a Schedule C Business you will need to have a Tax Attorney draw up relevant papers.

You appear to be happy as the sole owner and financier of your business, so that eliminates two of the reasons people have for choosing entities other than Schedule C. But the biggest reason not to be a Schedule C is that for this kind of business all the assets of the owner are available to satisfy judgments such as malpractice awards against the business. I have heard conflicting things about whether tax professionals can in some way set up a "corporate shield" to make money withdrawn from the business unavailable for such judgments against the business. That's why I recommend you talk to a Tax Attorney in your state.

By the way, "corporate shield" or not, you need good professional liability insurance. I trust that you have this but if you do not I would urge you to get it as soon as possible.

[JoshinNC]

Erchess,

Snags didn't say anything about this and I think it could be important to you. I think you should start by reading what TTB has to say on Business Entities. Once you have read that two or three times then I think you should go to a tax attorney in your state and ask for e recommendation after discussion of your present activities and future plans. You might like to get two or three opinions. If you choose to be anything other than a Schedule C Business you will need to have a Tax Attorney draw up relevant papers.

You appear to be happy as the sole owner and financier of your business, so that eliminates two of the reasons people have for choosing entities other than Schedule C. But the biggest reason not to be a Schedule C is that for this kind of business all the assets of the owner are available to satisfy judgments such as malpractice awards against the business. I have heard conflicting things about whether tax professionals can in some way set up a "corporate shield" to make money withdrawn from the business unavailable for such judgments against the business. That's why I recommend you talk to a Tax Attorney in your state.

By the way, "corporate shield" or not, you need good professional liability insurance. I trust that you have this but if you do not I would urge you to get it as soon as possible.

I've noticed that you recommend that folks go to a tax attorney, maybe 30% of your posts recommend this. I feel that a knowledgable, reputable EA or CPA is just as good as a tax attorney in most cases. Of course we can't do litigation work, but I think you might be shortchanging yourself in recommending a tax attorney for work that you might be able to perform.

Just something I noticed.

[Luis Mopeo]

I've noticed that you recommend that folks go to a tax attorney, maybe 30% of your posts recommend this. I feel that a knowledgable, reputable EA or CPA is just as good as a tax attorney in most cases. Of course we can't do litigation work, but I think you might be shortchanging yourself in recommending a tax attorney for work that you might be able to perform.

Just something I noticed.

EAs or CPAs are not qualified to advise clients on legal liability or liability protection. Tax professionals have a consistent negative reaction to lawyers giving tax advice, with good reason. The same principle applies to tax professionals who give legal advice.

Along the same line, a tax attorney would be the professional of choice for assisting a client in setting up a business entity, because the tax attorney would understand the tax and bookkeeping challenges. Too often we see lawyers who don't understand taxes setting up, for example, an S corporation, and failing to make sure the 2553 is filed and failing to impress upon their clients the need to completely separate finances between the entity and personal. They often provide zero tax planning for their clients, which leads to surprises when the client finally ends up in our office after having a year to completely mess up the financial reporting.

It's not good for lawyers who don't understand taxes to set up a business entity for a client. By the same token, it's not good for tax professionals to play junior lawyer and give clients legal advice, especially considering that liability protection is usually one of the primary reasons that a person sets up a business entity.

[OldJack]

EAs or CPAs are not qualified to advise clients on legal liability or liability protection. Tax professionals have a consistent negative reaction to lawyers giving tax advice, with good reason. The same principle applies to tax professionals who give legal advice.

An excellent post Luis!!

From my experience I would only add... who do you think the tax attorney calls for tax advice? Hint: Its probably not another attorney.

[George Boutwell]

Along the same line, a tax attorney would be the professional of choice for assisting a client in setting up a business entity, because the tax attorney would understand the tax and bookkeeping challenges.

Is a tax attorney something like a tax CPA? I have tax clients who are CPAs, and no doubt studied and were tested on tax law at one time, but whose practice does not involve individual income tax.

Some state bar associations do have "specialization" programs, allowing lawyers who voluntarily want to submit their credentials and experience to a review committee and pay additional annual dues, to call themselves specialists in certain fields like tax or divorce. Many of these "tax attorneys" work in such fields as municipal-bond opinions and corporate mergers and acquisitions (because that's where the money is), and hire someone else to do their own tax returns.

There is not one bar exam for tax lawyers, and another for divorce lawyers. Everyone (except for patent lawyers) follows more or less the same curriculum in law school, and is tested on the same broad range of federal and state criminal and civil law. Yes, there are additional degree programs such as LLM in Taxation, but most tax lawyers get that way by joining or starting a practice that requires knowledge and expertise in a particular area of tax law.

I think what the posts on this thread are suggesting is that it may be useful to consult a lawyer whose practice includes planning for microbusinesses. That can be as easy, or as difficult, as finding a good family-practice physician.

Self-help is always an option, just as it is in many divorce cases. Hiring someone who is not licensed to provide legal advice -- and choice of business entity involves legal questions, as others have pointed out here -- is an option only for those who choose to proceed at their own risk, relying on someone with no qualms about skirting the rules.

[Snaggletooth]

Professional Liability

Snags would not have said anything about creating anything beyond a sole proprietorship. I have been told that for certain professional occupations, protection under corporate law is not allowed. In our state, persons such as CPAs, Architects, tax preparers, and other occupations whose vocation is strictly personal service, such a practitioner cannot incorporate and void out professional liability. E & O insurance is about the closest thing to "protection" than anything else.

There may be other reasons for incorporating a proprietorship, but the corporate shield is not one of them.

Regards, Snag

[George Boutwell]

Unprofessional Liability

It should be pointed out, however, that a corporation might help if one of your clients slips at your front door and breaks a hip, resulting in blood clots and early death. It is wise to plan not only for the expected claim (malpractice) but the unexpected (your employee runs over a Walton on the way to the Post Office).

A couple decades ago, some very smart lawyers in my town put together a "liability protection package" for use by members of a medical association, intended to protect personal assets against malpractice claims. What happened is that the malpractice insurance took care of those problems, but those who had invested in leveraged real estate before the market collapsed were grateful that they did not lose everything.