Tax Treatment Lawyers
Smart business owners can structure their operations to minimize negative tax implications. A well-planned strategy can save the business thousands of dollars in taxes every year, leaving more resources to grow and invest in the business itself. Tax planning involves selecting the right entity, choosing the right “check-the-box” tax treatment, and more advanced planning.
Select the Right Entity Type
The first step to implementing the best tax treatment for a small business is to form the right type of entity. If no entity is formed, the business’s income is reported on the individual owner(s)’s tax returns. That may or may not be ideal, depending on the financial situation of the business and the owners.
- Small corporations – By default, corporations are taxed under Subchapter C of the internal revenue code. Almost all small businesses elect to be taxed under Subchapter S instead; this is sometimes called the s-election.
- Single-member limited liability companies – Single-member LLCs are disregarded entities by default, which means the business income is reported on the individual owner’s tax return.
- Multi-member limited liability companies – By default, multi-member LLCs are taxed as partnerships, with income tax applying at the individual owner level. The LLC files an informational return with the IRS, but pays no taxes itself.
More information about this process can be found on the incorporation and start-up page.
The Option of S-election
Small corporations, single-member, and multi-member LLCs have the option of electing tax treatment as s-corporations. The business attorneys at KM&A help small business owners make this important decision in consultation with the company’s CPA and other professionals. As a rule of thumb, once the net profit of the business exceeds $40,000-$50,000 per owner, it is worth considering the s-election. The election involves more paperwork and costs up front, but the scales tip in favor of the tax savings at a certain point.
Four basic steps are the foundation of forming an LLC, but also an LLC requires consideration of certain factors like tax liability and bank accounts.
When any changes are made to a limited liability company (LLC), both the operating agreement and the articles of organization must be amended.
Three types of legal forms dominate the business world, but each is equipped differently to serve your business so it’s vital to choose wisely.
Coordination with Other Professionals
At KM&A, our representation for small businesses extends beyond legal tasks. We work to build a long-term relationship of trust with small businesses where we consult and advise our clients on a number of issues. We work closely with a network of professionals to make sure our clients are taken care of. To help with taxation issues and work with the company CPA to manage the overall strategy in a way that works best for the business and its owners.
Kraemer, Manes & Associates LLC “KM&A” is a law firm serving all of Pennsylvania with our principal offices in Pittsburgh and Philadelphia. Call KM&A in western Pennsylvania at 412-626-5626 or in eastern Pennsylvania at 215-618-9185. KM&A can be reached by email at firstname.lastname@example.org.