Use the Same Tax Professional for Personal and Business

Many taxpayers will hire a professional to prepare their business return, and then will prepare their personal return themselves.  I do not recommend this if you own an S-Corporation or a closely held Partnership.

The primary reason you should not do this is because of the way Bonus Depreciation and the Section 179 deduction is handled.  If you take more Bonus Depreciation or Section 179 than you need, it is lost forever.  When I prepare an S-Corporation return that is closely held and the owner’s personal return(s) I toggle back and forth between the personal and business returns.  This ensures that the taxpayer(s) pay the least amount of tax possible without forfeiting Section 179 or Bonus Depreciation.  Without doing both returns at the same time you really don’t know for sure if you are maximizing your tax savings.

I’ve had business owners tell me to “just take the max” of Section 179.  They say this without really understanding it.  Then they prepare their personal return.  It is possible that they could be forfeiting thousands of dollars of future deductions by taking more Section 179 than they really need for that year.  The future deductions would more than pay for the extra preparation fee.

Of course, one could always file amended returns going back three years.  But, how would you know if you needed to file amended returns unless you hired a professional to take a look.  Also, if you did realize that you took too much Section 179 or depreciation in prior years and went back and filed amended returns, you would have to amend both business and personal, which would result in more preparation fees.  The best option is to simply have your tax professional prepare both your business and personal returns from the beginning.

Steps To Starting A New Business

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Starting a new business is exciting, however, there are a lot of administrative items to take care of.  Here is a general guide on what to do.

Decrease Your Chances of Being Audited

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According to IRS statistics your chances of being audited as a Schedule C Sole-Proprietorship are 3-4%, compared to an S-Corporation of 0.3-0.4%.  So, your chances of being audited are about 10 times greater as a sole-proprietor.  That sounds like a great reason to set your business up as an S-Corp!

Other ways to reduce your chances of being audited are:

S-Corporation Filing Penalties

Today is September 15th, the due date for extended 1120, 1120s and 1065 returns.  This is always a busy and sometimes rather stressful day at my office.  It shouldn’t be that way, but the stress level is high because we file a lot of S-Corp taxes and, well, the tax laws regarding late penalties for S-Corps are just plain unfair. 

What is an S-Corporation?

An “S-Corporation” is a regular Corporation that has elected with the IRS to be considered a “pass-thru entity”, where all income and losses are passed through to the individual shareholders personal returns.  Thus, an S-Corporation does not pay any Federal Income Taxes.  By electing S-Corporation status,

S-Corp Home Office

There is A LOT of fictitious tax advice out there.  The majority of it involves fraudulent or incorrect tax deductions.  One of the most common bad pieces of advice given to taxpayers involves an S-Corporation owner renting a home office from a shareholder.

Many tax “professionals” will tell an S-Corp shareholder to sign a Net Lease with the Corporation and lease a portion of their home to the company.  The problem with this advice is

S-Corp Reasonable Salary

There isn’t a clear cut answer to what a “reasonable salary” is. However, the IRS has come out with some guidance on the matter.

The instructions to the Form 1120S, U.S. Income Tax Return for an S Corporation, state “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.”