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Taxes |
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Our professional staff
has significant experience in the area of taxation. We prepare tax returns for all types of
personal and business entities, as described below: Individual Income Taxes
Individuals must file personal income tax returns annually
by April 15 (unless extended until October 15). Individuals are cash-basis taxpayers and
must use the calendar year. Recent
changes in tax laws signed by President Bush have resulted in reduced tax
rates, larger tax credits, lower phase-outs and other changes scheduled for
implementation over the course of the next ten years. One area that has not changed is the
Alternative Minimum Tax, which, unfortunately, will now impact substantially
more taxpayers. We mail tax organizer and questionnaire forms to all of our
clients prior to the end of the year.
These forms assist our clients in gathering the necessary data for the
preparation of complete and accurate tax returns. We assist our clients in identifying all
legal and appropriate tax deductions in order to minimize tax
liabilities. As the famous saying
goes, “there is no legal requirement to pay higher taxes than you are legally
obligated to remit.” Sole Proprietorships
Sole proprietorships are the simplest business form since
they are not separate tax or legal entities but, rather, extensions of the
individual taxpayer that owns them. A
taxpayer is a sole proprietor if they are self-employed and are the sole
owner of an unincorporated business.
The business has no existence apart from the owner. Its liabilities are the owner’s personal
liabilities. There is no special
return to file for the sole proprietorship.
The owner reports all transactions of the business in their own
individual income tax return via Schedule C. Advantages of a sole proprietorship include: · Low
organizational costs · Legal,
accounting and administrative fees are lower · Administration
is less complicated · No separate
tax returns required to be filed (included with Form 1040) Disadvantages of a sole proprietorship include: · Personal
liability · Inability
to income split · Limited
fringe benefits · Self-employment
tax, requiring the payment of employee and employer social security taxes. · Limited
retirement plans Partnership Income
Taxes
Provisions for the taxation of partnerships require the
filing of an information return.
Income and deductions flow through to, and are reflected on, the tax
returns of the partners. The IRS Code
prescribes the consequences of many different sorts of transactions involving
partnerships and partners but allow substantial flexibility so that the
parties can often achieve the tax results they desire. Tax Form 1065 is filed for Federal purposes
while Tax Form 565 is filed for While a partnership must figure its total income and file
Form 1065 that provides information on partnership income or losses for the
year, the partnership itself is not subject to income tax. A partnership does not make estimated tax
payments. However, the partners may
have to make payments of estimated taxes, both Federal and State. A partner’s distributive share of income
from a partnership is usually included in figuring net earnings from
self-employment. If an individual
partner has net earnings from self-employment of $400 or more for the year,
the partner must figure self-employment tax on Schedule SE of Form 1040. S Corporation Taxes
Similar to partnerships, all items of income, deduction,
credit, gain and loss are passed through on a pro-rata basis to the
individual S Corporation shareholders.
In short, the S Corporation is taxed like a partnership; it pays no
taxes, and its income and deductions pass through to the shareholders. In other respects, however, S Corporations
are taxed like C Corporations. Tax
Form 1120-S is filed for Federal purposes while Tax Form 100-S is filed for Advantages of an S Corporation include: · No double
taxation. Profits are allocated to
shareholders and are only taxed at individual rates · Losses are
currently deductible by shareholders · An S
Corporation is specifically exempted from the accrual method of accounting
and can therefore us the cash method of accounting despite the nature of the
business · Provides a
corporate shield for liability purposes for taxpayers without the potential
liability problems of a partnership Disadvantages of an S Corporation include: · Because there
is no corporate tax rate, nonqualified deferred compensation plans are not
permissible · No
opportunity to accumulate corporate earnings in a lower corporate tax bracket · The 80%
dividends received deduction is lost · All
income, except long-term capital gains, received by the corporation is
taxable to the shareholders whether
or not they are currently distributed C Corporation
Taxes
For purposes of Federal income taxes, the corporation is
recognized as a separate tax paying entity.
This causes, in the case of most corporations, double taxation. Income is taxed first to the corporation
that earns it, and secondly to the shareholders when the earnings and profits
are distributed to the shareholders (when the earnings and profits are
distributed as dividends and/or when the corporation is liquidated). Tax Form 1120 is filed for Federal purposes
while Tax Form 100 is filed for Advantages of a C Corporation include: · As a
separate taxpayer, it can be used to split income between itself and its
owners, with potentially lower overall
tax rates as a result · Deduction
for fringe benefits for its employees/owners, such as medical insurance or
medical reimbursement plans, disability insurance, or group term life
insurance · Ability to
elect a fiscal tax year · Ability to
deduct up to 80% of the dividends they receive from investments in other
domestic corporations Disadvantages of a C Corporation include: · Required
use of the accrual method of accounting with large inventory · Earnings
are subject to double taxation where income is paid out in dividends · Potential
personal holding company tax on interest, dividends rents and royalties Accumulated Earnings Tax Trap A corporation can accumulate its earnings for use in
possible expansion or for other bona fide business reasons. However, if a corporation allows earnings
to accumulate beyond the reasonable needs of the business, it may be subject
to an accumulated earnings tax. We can
assist your business in setting up the proper documentation to successfully
defend against an audit by tax authorities. Limited Liability Companies
(Partnerships/Corporations) A limited liability entity is a non-corporation business
that provides its members with limited liability, a single tax and the option
to participate actively in the entity’s management. The Internal Revenue Service does not
recognize and LLC as a distinct entity.
Although exhibiting the corporate characteristic of limited liability,
the entity is usually treated as a partnership for Federal and When a limited liability company/partnership is treated as
a partnership for tax purposes, it can provide several benefits: Advantages of an LLC include: · Pass-through
of tax attributes under the partnership tax rules · Limited
liability to all members · Control
over the business by the members without the risk that management
participation will cost members
their limited liability · Freedom
from S corporation eligibility requirements Disadvantages of an LLC include: · Some state
statues, such as · Managers
who are actively involved in the management of the LLC will be subject to
self-employment tax · California
LLC’s are required to pay the $800 minimum
franchise tax plus a “gross receipts fee” that is based on total income (even
though the LLC may have a net loss for tax purposes) Because of these negative attributes, we generally advise
clients to NOT form an LLC in Trusts
A trust return is required when a legal entity is formed
for an individual or an estate. Such
entities include charitable remainder trusts, split interest trusts,
revocable living trusts, complex trusts, simple trusts and estates. Tax Form 1041 is filed for Federal purposes
while Tax Form 541 is filed for Non-Profit Entities
Organizations created under Internal Revenue Code Section
501(c)(3) must file an annual information return
with the Internal Revenue Service.
Beginning in 2008, the IRS redesigned and greatly expanded Form 990 on
three guiding principles: enhancing transparency, promoting tax compliance
and minimizing the burden on the filing organization. Tax Form 990 and all applicable schedules
are filed for Federal purposes while Tax Forms 199 and RRF-1 are filed for Not-For-Profit entities do not pay any income taxes, but
may be subject to sales tax (for sale of inventory items) and unrelated
business income tax (UBIT). The
imposition of these taxes will require the filing of separate tax
returns. |
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Copyright © 1999 - 2011 Regalia & Associates, CPAs |
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