FAQ

You may believe that forming an LLC is the first step in starting your business.  You know it provides necessary legal protection from creditors and customers. You may also think it is the only way to secure a professional name for your business. You might be surprised to learn that not every business needs to be in an LLC and in fact many businesses operate successfully without one. To find out what factors to consider before forming an LLC, watch my informational video (coming soon).

When you are an employee of a company getting a regular paycheck, three types of taxes are withheld from your pay: income tax, Social Security tax and Medicare tax. When you earn money on your own as a self-employed person, you are still subject to these three taxes. Self-employment tax is the vehicle thru which you pay Social Security and Medicare taxes on your net profits. It is computed on your personal tax return and is added to the income tax you owe. Many business owners are not aware of self-employment tax and this ends up creating an unpleasant surprise when April 15th comes around. Read my blog to be better prepared for the self-employment tax you will owe.

When you earn money on your own as a self-employed person, you do not have taxes withheld like when you received a regular paycheck. You are personally responsible for setting aside money from the net profit of your business to pay your taxes. Additionally, you are required to pay your taxes to the IRS at four different dates throughout the year – a pay as you go system called estimated tax payments. Saving for and making estimated tax payments is an important step in staying current with the IRS and avoiding penalties and interest. Read my blog to learn the details.

If you operate your business using an LLC, the rules for tax reporting are not exactly straightforward. If you own 100% of the LLC in your name, you can report all the income and expenses on Schedule C with your personal tax return. If you and your spouse own the LLC jointly, technically you have a partnership and must file a separate tax return every year for the partnership. There is an exception to this rule if you live in a community property state. If you and a friend own the LLC together, then you definitely have a partnership and must file a separate partnership tax return every year. To understand the correct way to report the net profit of an LLC, and whether or not the profits are subject to self-employment tax, please watch my informational video (coming soon).

If you have an LLC with more than one owner, or if you organized as a partnership with the Secretary of State, you are required to file a separate tax return reporting the income and expenses of the partnership. Partnerships are very flexible and tax efficient entities which makes them a popular choice when multiple people decide to start a business together. However, partnership tax reporting is complex and there are many unique rules to be aware of. For example: you must calculate your tax basis in the partnership each year, you must check various rules before deducting a net loss, you may be subject to self-employment tax, and if you work in the business, you should NOT be getting a payroll check and a W-2. I bet something you just read took you by surprise! If your business is taxed as a partnership, it is very important that you have a good understanding of the various tax rules that apply to partnerships. My instructional video will get you on the correct path as the owner-operator of a partnership.  (coming soon)

Someeone may have told you that you need to form a S Corporation to save big on taxes. This is possibly the most misleading advice a business owner can receive. S Corporations are what I call a hybrid entity – part corporation and part partnership. They have very specific rules and if you run afoul of them, it can end up causing a lot of trouble with the IRS. That being said, S Corporations are very useful in certain situations to reduce the amount of self-employment tax you pay. Many tax preparers advise a client to set up their business as a S Corporation and don’t explain how much tax it will save or how to correctly operate it. This makes it easy to find yourself in serious trouble with the IRS. Would you like to understand how a S corporation is supposed to operate, how it saves taxes and if it is the right option for your business? Then please watch my instructional video. (coming soon)