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3 Record Keeping Tips for New Businesses

Record keeping is a challenge for many businesses, but especially for new and small businesses.  If you have recently registered a business learn how to avoid record keeping problems with three simple rules.

  1. Keep business and personal expenses strictly separate. Open a business bank account, and use it only for business transactions. Do not pay personal expenses from your business account and do not pay business expenses from your personal account. If you need to lend the business funds, write a check to the business and label it a loan. Make a separate deposit with the loan check and write in red ‘personal loan’. If you lend money to your business and don’t make a note, it could be treated as taxable income when you do your tax return, and if you pay business bills with a personal check, there is a strong possibility that some of those expenses will be omitted from the business records. If the business is supporting you, write yourself checks at regular intervals and deposit those into your personal account, so that you can pay your personal expenses from
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Choosing The Right Type of Business Entity is an Important Decision

When you start a business, you have many choices to make. One key decision is choosing the form of business entity in which you will operate. For starters, you can set up your business as a Sole Proprietorship, C-Corporation, S-Corporation, LLP (Limited Liability Partnership), or an LLC (Limited Liability Company).

How can you narrow that list down? Small businesses typically decide against a C-Corporation, because

 

Choosing The Right Type of Business Entity is an Important DecisionC-Corps generate two levels of federal income tax. The C-Corporation pays one level of tax when it files its federal corporate tax return, Form 1120. A second layer of tax is imposed when the C-Corporation’s profits are

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The Best Place to Incorporate Your Small Business

There are many different reasons for a business to incorporate in one state over another. It may be that there is no state income tax or that the laws are perceived to be friendly to businesses.  For example Delaware is believed to be a pro-business state, and accordingly is home to more than 50% of publicly traded US corporations. Nevada, in addition to being pro-business, has no income tax and does not share information with the IRS.  It also allows business owners to remain anonymous.

For small business with operations in a single state, however, the primary consideration is where the business will be physically located. A Florida small business, if registered in Delaware, would need to be registered in FL as a foreign corporation, and would therefore have 2 state registrations and annual reports to deal with.  Small businesses want to avoid the added paperwork and compliance issues of having to register in multiple states.

Also remember that the tax rates and fees of a state may seem attractive, but in addition to those fees a business still has to pay

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S-Corporation K1 Profits VS Distributed Profits

Learn why the profit stated on an S corporation K1 may be more than the amount actually received by the owner.

An S- corporation is a special tax structure designed for small businesses.  The advantage is primarily that there is a single level of tax compared with 2 levels (double taxation) of tax with the traditional C-Corporation, and the business does not have to file with and pay tax to the state of Florida.  The total profit for the S-Corporation is divided among the owners and reported on K1s.  This means that the each owner pays tax on his/her share of the profits.  This arrangement, while very attractive and allows small businesses to pay less tax, comes with a disadvantage for the S corporation owner.  

The C corporation stockholder only pays tax on dividends received, while the S corporation owner pays tax on his share of the profits whether or not it is received.

The portion of profit attributed to an owner, and reported on the K1, may not be the same as the amount of cash

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Employees VS Independent Contractors: If you are starting a new business, you should know the difference

Many small businesses prefer to classify workers as independent contractors rather than employees because it’s easier and less costly, but businesses need to be aware that there are Internal Revenue Service and state rules about which workers can be considered independent contractors as opposed to employees.

Note that the IRS and state governments never argue with a business if workers are classified as employees, because that’s what the government agencies prefer.  After-all, when workers are classified as employees, the business collects taxes and pays them over to the government.  This makes tax collection much easier for the government.  It also makes it easier for the worker to pay his or her taxes. 

When workers are classified as independent contractors, the government agencies may argue that the workers are in fact employees and that the business should have withheld taxes.  Unless a business can demonstrate, within the guidelines, that the workers in question are in fact independent contractors, it can be held liable for the taxes that should have

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