Category: Law Firms

incorporating a business

Why Incorporate?

If you are thinking about starting a business, someone almost certainly suggested that you incorporate your business, probably as an S Corporation or LLC. However, it’s unlikely they told you why. Corporations are not for everyone, but they do have a lot of advantages. Let me go over some:

  1. LIMITED LIABILITY: This is the most important thing that a corporation provides – peace of mind. Limited liability means that the debts and obligations of the corporation are separate from your personal property. So, for example, if your business is sued or owes money, the corporate form protects your house from your creditors. This is a great way to minimize the risk of starting a business.
  2. TAX ADVANTAGES: Many unincorporated businesses have heard their CPA complain that they can’t take advantage of all of their deductions unless they incorporate. This is true – all corporate forms allow tax return preparers to properly deduct more expenses. Another potential tax saving is for people with multiple streams of income. In some cases, by organizing each stream of income into its own corporation, they can take advantage of certain parts of the tax code to reduce their overall tax burden.
  3. MONEY: Lenders like to see professional, properly run businesses. When you incorporate, they take you more seriously and are willing to lend more money.
  4. PROFESSIONAL: Clients, like lenders, like to see a professional business at the other side of their transactions. Incorporating makes you look more serious and more reliable and can help you close deals. Some larger businesses may require you to be incorporated to do business with you.
  5. INDEPENDENT CONTRACTORS: After California passed the infamous AB5 law, everyone is afraid of inadvertently turning a regular business transaction into having brought on a new employee. While having a corporation is not the only factor that determines your employment status, it is an important one. Legitimate consultants and contractors of any kind should seriously consider incorporating to avoid this problem.
  6. ANONYMITY: A corporation allows you to sign deals and checks with your corporate name, not your personal name. While your name is likely to be in some public records with any corporation, it’s not often that people will look it up. If you want to reduce your personal public exposure, a corporation will help you do that.

While those are the pros to incorporating there’s really only one con: it costs money. You will typically have to pay someone to incorporate your business for you. And then there will be a $800 (sometimes more) yearly fee to the state for S Corps and LLCs. You will have to hold at least one corporate meeting each year and maintain the minutes of that meeting.

Weigh these pros and cons when making your decision on whether to incorporate your business.

Learn more about the services offered at Tumer & Sharif Attorneys at Law:

President Trump and 2018 Tax

Your 2018 Taxes After Reform – A Quick Look

Now that the tax reform bill has passed and people have had a chance to read it, here is a quick look at how it will affect you and how to adjust your tax planning with the new scheme.

Although there are a lot of benefits in this bill for businesses and corporations, they tend to be across-the-board cuts and specific giveaways to particular businesses. Only two things really stand out from a planning perspective – the reduced penalty on repatriating overseas profits and the increased standard deduction for pass-through entities. The first affects only the biggest corporations. Most businesses do not have hoards of overseas cash to bring home.

As for the pass-through entities (partnerships, LLC’s and S Corporations), the increased deduction is across-the-board. It may make a difference for those businessmen that both draw a salary and profits from their business and they should speak to a tax professional about how this change affects them, as there are specific provisions in the bill to avoid recharacterizing income to take advantage of the change.

Your personal taxes are where the biggest changes will land. If you took the standard deduction in 2017, all the news is good – you’ll be paying less taxes overall. If you itemized, the news is not so good.

In the past, everybody had two options on their taxes – either take the “standard deduction” to reduce your income by a set amount to represent the various exempted expenses from your day-to-day life or itemize – list your specific exempted expenses. As a tax professional, we always compared the possible itemized expenses to the standard deduction to see which one made the most sense to use. The new tax bill reduces the amount of exempted expenses while also raising the standard deduction.

If you itemized your deductions (that would be on Schedule A of your 1040), and it was not that much larger than the standard deduction, you will now have the benefit of the larger standard deduction. Fewer receipts to keep track of. But if you had significant Schedule A deductions, you will very likely see an increase in your taxable income as your deductions are reduced, perhaps down to the standard deduction amount.

A few people were able to take advantage of the changes to move certain expenses into 2017 to take advantage of the old rules. However, most people were not in a good position to do that. Moving forward, plan on fewer tax advantages to loans. In particular, mortgage interest, home equity lines of credit and student loans will provide less tax value, mainly because they will no longer eclipse the standard deduction. Recalculate your plans for long-term financing to account for this.