We’ve saved the best (or worst) for last. If you’ve been heeding our advice throughout the 8 Steps to Managing Your Money: A Business Owner’s Guide, you’re now equipped with the basics of taking control of your money, making the most of it, and, hopefully, poised to make more of it.
All cynicism aside, we don’t view business taxes or even the taxman as an enemy of business. America is the most extraordinary place on earth to be an entrepreneur, and if we have to pay taxes to enjoy the unparalleled opportunities of doing business in this country, then by all means we will do so without complaint.
Having said all that - don’t blow money unnecessarily on Uncle Sam, who has a personal army of bookkeepers over at the Internal Revenue Service.
Our approach to taming your taxes is straight forward: Plan, prepare, and be proactive. Like the other processes in financial planning, the more work that you do in advance with your accountant, the more it will help your business through “tax season” and the toll taxes have on your business.
Selecting a Structure
You need to start your preparation by figuring out what kind of entity structure you should be classified under. This is to your benefit because it can avoid the need to pay as a sole proprietor of an enterprise and getting stuck with double taxation on both a personal and corporate level. Sole proprietorship might be attractive to some business owners because it takes less work to set them up, but you might be able to get more tax breaks if you structure your venture under a different entity. The type of structure you choose depends on what kind of business you are running. Some examples of structures are as follows
Most organizations that have some type of manufacturing function (and most businesses in the country, for that matter) fall under this category. These are set up as separate legal entities from the owners and involve the participation of shareholders who vote on the direction of your business and collect available dividends.
Software consultants, Web-site designers and programmers and other professional services can often fall under “S” corporations. These involve less taxation than C corporations, as shareholders report earnings under their individual tax forms as opposed to an S corporation, where taxes are paid on both dividends and the company’s profits.
An LLC, or limited liability company, is best suited for entities that own any type of real estate, such as those with storefronts. An LLC can guard those assets from certain tax liabilities and lawsuits.
We provide more details on these structures in our 10 Steps to Open for Business process. But even the advice we provide there is only supplemental to the professional advice you should get from a tax specialist.