Have you ever wondered after submitting your tax returns if there was something you could have done to save money on the taxes you pay?
One of the first things entrepreneurs must do when starting a new business before getting a tax identification number, or opening a bank account, is to determine if you want your company formally recognized by your state of incorporation. Most new entrepreneurs will establish an S Corp or Limited Liability Company (LLC). But there are many other options and each option has different tax implications.
Without going into all the different tax implications of each, other options included:
- C Corp
- Nonprofit Corporation
- Limited Partnership (LP)
- Professional Corporation (PLLC)
- Doing Business As (DBA)
- Sole Proprietorship
Each business is different, each has different business cycles, and each entrepreneur has different goals for their business. These and other factors need to be analyzed carefully before the business is established. If an entrepreneur establishes their business incorrectly, then excessive and unnecessary taxes will be paid by the business. These excessive and unnecessary taxes are funds that will come directly from the business owner’s pockets. So establishing the correct incorporation for your business is essential in reducing the business’ legal tax obligation as well as putting the maximum profit into the pockets of the owners.
Entrepreneurs also need to constantly evaluate their business and goals. As the business grows, it may be beneficial to change its incorporation status to reflect the growth of the business. If an entrepreneur does not evaluate the business on a regular basis, even if the entrepreneur initially established the business incorporation correctly, over time the growth of the business may have caused the business to outgrow its original incorporation status. This results in the business incurring excessive and unnecessary taxes as well.
Entrepreneurs also need to be aware of opportunities provided by their current business to create new businesses that can help reduce the overall legal tax obligation. A good example of this is a heating and air conditioning HVAC company. The business originally began servicing residential heating and air conditioning units. As the company grew, it had an increase in the selling of heating and air conditioning units. A new HVAC business was soon created that only sold units while the original HVAC business concentrated on the service of units. The two HVAC businesses were incorporated differently, but in a way to reduce the overall legal tax obligation of the two businesses. Many entrepreneurs miss this opportunity to lower their business taxes.
Contact us to discuss how your business is set up and if there is a more beneficial way to set up your business to save you financially. Phone (704) 560-9318