Elect the Best Business Structure
This article is the second in a series of seven conversations we’ll be having on the topic “Perfect Your Tax Savings”.
In the first article of this series, we started getting you to think differently about your taxes and I introduced the concept of Tax Efficiency. The whole idea is that there is massive opportunity to move income from a less preferable to a more preferable tax status. One of the quickest ways to change your tax status is to be operating in the best business structure for your particular situation. Let’s talk a little about why someone would incorporate their business and build on that.
Traditionally people tend to think of incorporating as a way to protect themselves if something goes wrong in their business. That is definitely a valid concern and there are instances where that is the most important concern. However, many business owners are shocked to find that they created an LLC (Limited Liability Company) to protect themselves and still find themselves running their business profit and loss through their personal tax return.
That’s because for tax purposes, the IRS still views your business as you rather than a separate entity. Sometimes that’s okay. But when you start to grow that business and make a decent profit, you are paying too much in taxes. And none of us goes into business with the idea that they’d like to throw away money just because they didn’t know the best way to setup their
WHY DOES STRUCTURE MATTER?
Most people don’t realize when they incorporate that the type of business structure they select has a direct impact on the Tax Efficiency of their business. After all, when your primary focus is protection, you’re not really focused on savings right? Don’t feel bad…most people fall into the trap. The cool thing is that the tax code has provided for business structures (one that I really like in particular) that can improve your Tax Efficiency once and for all. Subchapter S from Title 26 of the US Tax Code is one of those gifts to small business owners that can really make our lives infinitely better.
are not perfect for everyone, but the point is that there are business structures that are better for tax savings than others.
KEEP SHARPENING YOUR SAW
The “Perfect Your Tax Savings” series is designed to show you, at a high level, the program I have created through many years of education and practice. And it works. Using it, I save my clients thousands of dollars each year on their taxes. I am presenting it to you here to allow you to “kick start” your tax savings education into high gear. I don’t know about you, but to me, that is time well spent.
The next installment of the series will take a look at what we do once the correct business structure is established. HINT…not all income is created equal.