Drew Miles Tax Planning Advice and Tax Savings Tips

In part 2 of Choosing the right entity for your company Drew Miles discusses a tax scam to watch out for and tells you how corporations can help you take advantage of many business tax deductions.  This can feel overwhelming to new business owners but Pathfinder Business Strategies covers this information more thoroughly in our online coaching programs and shows you the fundamentals for setting up an efficient tax strategy for your business and how to avoid a tax scam such as business tax deductions for offshore trusts or International Business Corporations.

Pathfinder Business Strategies has found that these entities are often associated with a tax scams. If your business is structured properly, there is no reason to reach offshore in other jurisdictions; we can accomplish all the necessary asset protection and tax strategy tools with domestic entities.

There are five types of business entities that investors can take advantage of many business tax deductions, tax write offs and other efficient tax strategies: Sole Proprietorship, General Partnership, Corporations (“S” and “C”), Limited Partnerships and Limited Liability Companies (LLC’s).

Today we are discussing corporations, partnerships and LLC’s.

A corporation is a separate legal entity that is governed by state law. It operates through bylaws and resolutions written and adopted by shareholders and directors. The state of incorporation operates on its own statutes, rules and regulations based on whether it is an “S” or “C” corporation.

The “S” corporation is a separate legal entity for liability purposes. Profits and losses flow through to its shareholders individually that each must pay taxes on. An “S” corporation cannot retain earnings, have no more than 35 shareholders and must have a December 31 year-end for business tax purpose. This can be an advantage if there are corporate losses that could help the shareholders with business tax deductions and write offs.

A “C” corporation is similar to an “S” corporation in that they are separate legal entities and have stockholders. The difference is that there are no limits on the types or number of shareholders and they can retain earnings. They also can elect another date for their year-end and business taxes are at a corporate rate.

Limited Partnerships are businesses where ownership and management are separate. This is used frequently for business investments. An example would be the intent to purchase a rental property; you would manage the property yourself and the limited partners are the investors to finance the project. As the general manager, you facilitate the day-to-day operations and are responsible for liabilities that may occur. Limited partners are not. Their investment is their only risk.

The Limited Partnership has a method of asset protection called a charging order. The charging order protects the L.P. from a creditor by blocking asset rights to the L.P., no access to voting rights or control, access to ONLY the distributed profits of the company, and creates a business tax obligation on the creditor so long as there is a profit, even if that profit is not distributed to the partners. Bottom line, L.P. protects your business and allows no control or power to a creditor.

The Limited Liability Company (LLC) is an entity with all the tax savings of “S” and “C” corporations and the power of the charging order. However, with a LLC, only one member is required, there is enormous asset protection, lawsuit deterrent power through the charging order and the flexibility of business tax deductions as an “S” or “C” corporation. For this reason, Pathfinder Business Strategies encourage clients to use LLC’s to benefit from business tax deductions and tax credits.

Drew Miles is an expert at teaching you how to avoid a tax scam.  He is also an author, teacher, and international speaker. He worked as an attorney for 18 years before retiring in 2006 to concentrate solely on his commitment to serve his clients and expand Pathfinder Business Strategies’ scope of programs. His highly acclaimed book, Zero to Success, chronicles the steps every new business owner must take to ensure success. He has been featured in Forbes, the Dallas Morning News, American Banker and Yahoo Finance. To date, he has helped 4000 business owners save over $50 Million dollars in taxes. That’s why he’s known throughout the United States and Canada as The Tax Saving Attorney™.  Visit http://www.pfbs.com for more details.

Choosing what kind of entity is right for your company can feel overwhelming to new business owners. Pathfinder Business Strategies covers this information more thoroughly in our online coaching programs but here are the fundamentals for setting up an efficient tax strategy for your business and how to avoid a tax scam such as business tax deductions for offshore trusts or International Business Corporations. Pathfinder Business Strategies has found that these entities are often associated with a tax scam. If your business is structured properly, there is no reason to reach offshore in other jurisdictions; we can accomplish all the necessary asset protection and tax strategy tools with domestic entities.

There are five types of business entities that investors can take advantage of many business tax deductions, tax write offs and other efficient tax strategies: Sole Proprietorship, General Partnership, Corporations (“S” and “C”), Limited Partnerships and Limited Liability Companies (LLC’s).  In this blog we only going to cover two of the five entities, Sole Proprietorship and General Partnerships.  The other three will be covered in our next blog.

Sole Proprietorship is the easiest method of business. There are no corporate documents to file except possibly a business license. You simply print up your business cards and go. However, the danger to a sole proprietorship is that your business AND personal assets are at risk from business liabilities. That means your investments, your home, your car, and your bank accounts are not protected or separate. In addition, sole proprietorships are subject to a self-employment tax of 7% on the first $85,000 in income. The cost of set-up and maintenance is a small percentage of that amount. Pathfinder Business Strategies recommends looking at structures for efficient tax strategy.

A General Partnership is an association of two or more people in a business. No formal filing is required and you do not need a written agreement. It is also the most risky of the five entities. Because you have one or more partners, you are responsible for not only your own business liabilities or problems but also those of your partners. General Partnerships are considered as joint and several liabilities, which mean that if a judgment is held against your business, the complaint can be enforced separately or jointly among the business partners. You could be responsible in a lawsuit primarily because you have more assets than your partners do. This appeals to some owners because of multiple partners and investments but generally, Pathfinder Business Strategies discourages clients from this financial tax strategy, also.