Ah, it’s that time of year – pumpkins, cider donuts, leaf peeping, knee-high boots, and no more humidity!
It’s also the fiscal year end for many businesses and the approach of the drop-dead date on tax extensions from May. Your CPA/EA is working double time to get all those extended returns filed, but will soon shift gears, if they haven’t already, to planning for the 2022 returns due in April.
When they do, some of you sole proprietors who ABSOLUTELY CRUSHED IT this year, may find it is time to shift from the sole-prop mode to being an entity so you can strategically tax plan moving forward. Your CPA or EA may review your books this year and recommend forming an S-Corp so you can be taxed as a corporation rather than an individual.
If you’re currently a sole proprietor or partnership, then you have the option to be an LLC or a Corporation and then make an S-Corp election. Each has its pros and cons, and things to consider including:
· Ease of operation
· Cost of formation
· Cost of continuing filing fees
· Cost of accountant fees/filings
· Current ownership vs. future growth plans
As an attorney, it is my duty to tell you (and the hill I will die on) that the first and foremost reason to form an entity (LLC or corporation) is for legal protection and ideally you form when you begin your business. Tax considerations should, in my humble opinion, be secondary. However, the reality is that many business owners operate without an entity until the tax issues become pressing.
If you’ve been operating as a sole proprietor/partnership, be aware that every action/agreement/sale you committed to prior to forming an entity is not automatically absorbed under the legal protection of the entity. However, there are steps you can take to put some of that toothpaste back into the tube – assigning contracts to the entity, for example. So, this is a case of better late than never!
If you’ve talked with your CPA/EA and they are encouraging you to form your entity now before the tax year ends, I am here to help get your entity up and running the right way, so you get the full legal protection and tax advantage of an LLC or Corporation. (Bonus: legal fees and filing fees are deductible business expenses and a good way to spend down if you need to reduce your Net Income!)
Grab a time on my calendar for a FREE no-obligation consultation: https://calendly.com/lisasigmanlaw/consult