5 Common Mistakes in Starting a New Business

5 Common Mistakes in Starting a New Business

Starting a business is a bit more than having a great idea for a product or service. There are other important – legal – decisions to be undertaken. The truth is a large percentage of new businesses fail within the first 18-20 months; however, arming yourself with a bit of knowledge can make all the difference.

Here are some things you need to know:

  • Always Get Advice from A Professional – Forming your business can be very complicated if not unique. There are those who go forth as a sole proprietor and its fine for them, and there are those who require a level of legal protection not afforded by a sole proprietorship, and that’s smooth sailing too. Still, there are those who look at an LLC filing as adding real status or credibility to a business – and in truth it is very easy to obtain an LLC even online – however, not understanding what your business entity is, will cost you more in the long run, especially since there are tax requirements and compliance fees to be aware of, and very few states will permit a company to change business structures once that structure is decided upon, so it’s important upfront to choose your entity wisely. Consulting a professional such as Dunham Tax Professionals is so important moving forward.
  • Knowing What You Don’t Know – Even if you ensure liability protection, it doesn’t extend that protection to criminal acts, fraudulent practices or using the corporation to further your own personal interests, such as raiding corporate coffers for personal expenses.
  • Getting the Proper Local Business Licenses – Too often, owners discover they are not in compliance with local business ordinances – even if they are properly incorporated – and end up paying thousands in fines or back taxes, or worse, a combination of both with loads of additional penalties.
  • Get Compliant and Stay Compliant Once you do create a business entity – either an LLC or corporation – there are several responsibilities you have to maintain legal compliance, e.g., fees, licensing renewals; reporting timely and accurate changes in ownership or agents; tax liabilities. Failure to file current paperwork or taxes can result in both late fees and other fines and penalties for you and your business.
  • Having Sufficient Capital – This may not seem necessary to point out, but it takes money to start a business: owners need to be mindful that there will always be liabilities to cover. And if you don’t have enough revenues, assets, capital or insurance to cover your liabilities, you’re going to be subject to some potentially aggressive penalties.

The advice of an accountant or financial professional is crucial to determine what you need to start your business in the right way in your state or municipality. Dunham Tax Professionals are always available to assist you. Schedule an appointment today.

Why You Might Choose S Corp Taxation for Your LLC

Why You Might Choose S Corp Taxation for Your LLC

A limited liability company – or LLC – is a legal entity formed under state law to run a business. It provides many of the advantages of a corporation but is easier to form and operate. The way that business is subsequently taxed may need some explanation.

A multi-owner LLC is automatically taxed as a partnership by default, while LLCs with one owner are taxed like sole proprietorships. However, LLCs may choose to be taxed as a C corporation or S corporation. This is easily accomplished by filing a document called an election with the IRS. Once this is done, as far as the IRS is concerned, the LLC is the same as a corporation and it files the tax forms for that type of entity.

Choosing to be taxed as an S Corp can have distinct tax advantages

An S corporation is a pass-through entity, meaning that income and losses passes through the corporation to its owners’ personal tax returns. S corporations also report their income and deductions much like partnerships. An S corporation files an information return reporting the corporation’s income, deductions, profits, losses, and tax credits for the year. 

Under an S Corp entity, the LLC would then need to set up a monthly payroll where the owner would need to be established as a legal employee and be paid separately from the LLC and require payroll taxes be submitted.

However, it is noteworthy that S Corp strategy does not apply if the business is categorized as a personal service business, such as accounting, law, health, consulting, athletics, financial services, and brokerage services. The pass-through deduction is not available for such businesses where the owner’s taxable income is over $415,000 for married or $207,500 for singles.

Is filing as an S Corp right for your business? Dunham Tax Professionals will help you sort it all out. Feel free schedule an appointment with us today.

What is a DBA – And Do I Need One?

What is a DBA – And Do I Need One?

DBA simply means “doing business as.” And is any registered name that a business operates under that isn’t its legal business name. A DBA is sometimes called a trade name, fictitious name, or assumed name. Registration of a DBA requires a fee and yearly renewal for as long as the business exists and or operates under the registered name.

You may decide that you want to register a DBA if:

  • You have a registered formal business entity looking to branch out into new products, services or brands, or to rebrand in general.
  • You have an unregistered business such as a sole proprietorship or partnership and would like to operate under a name other than your personal name.

It’s important to note that first-time business owners often confuse DBAs with a type of business structure. They assume that when they register a DBA, they are creating a formal business structure with liability protection, but this is not the case: starting a business and registering a DBA only changes the legal name of the business. The DBA name helps with banking and branding the business, but the business owner’s personal assets are still completely the same as the sole proprietorship or partnership structures.

DBAs are not restricted to sole proprietors or partnerships. If you’ve formed an LLC and your LLC wishes to do business under a name other than its legal name (the name it was created with), you’ll be required to register a DBA in order to do so.

We’re here to help. If you have any questions on registering a DBA, schedule an appointment with Dunham Tax Professionals. 

S Corp Vs C Corp: What’s the Difference?

S Corp Vs C Corp: What’s the Difference?

Corporations are probably the most widely talked about business types in the United States – if not the world at large – and yet, also the most complex and yet easily misunderstood. Many new business owners who would otherwise be in sole proprietorships or even partnerships believe that the first thing they must do when forming a business is to incorporate – and this likely may not be the case early on; at the same time, there are those who believe that incorporating is for Fortune 500 companies and that there are no benefits for small businesses – and that may also not be true.

In order to determine whether forming a corporation is appropriate, it’s necessary to ask three questions:

  • Do you have assets that need to be protected?
  • Are you staying in business for the foreseeable future?
  • Are you going to be (or willing to down the road) giving up/selling ownership stake in your company as a means of capital gain?

If the answer to any or all of these is yes, you should form a corporation.

A corporation is a business entity that is legally separate from its owners. It has the right to enter into contracts, take legal action against others, give and receive loans, own assets, hire workers and pay taxes.

One of the most significant things about a corporation is its limited liability. That is, shareholders have the right to participate in the profits through stocks and paid dividends but are not held personally accountable for the company’s debts or legal issues that may arise.

There are two types of corporations – S Corporations and C Corps – to be discussed here:

 An S Corporation is a business entity that is federally taxed in a certain way. It is taxed as a pass-through entity by the IRS. This means that the S Corporation gives out stock to shareholders they are protected from liability just as they would be if they had an incorporated business. That means that if something bad happens to the business, the shareholder’s personal bank accounts cannot be tapped.

Each shareholder is subject to their own tax rates on their shares, on individual returns.

It is necessary to point out that the IRS does have a list of requirements to meet S Corporation status:

  • Be US-based
  • Have only allowable shareholders including individuals, certain trusts, and estates and may not include partnerships, corporations or non-resident alien shareholders
  • Have no more than 100 shareholders
  • Have only one class of stock
  • Not be a company such as a financial institution, insurance company or do any international sales.

There are a lot of advantages to S corporations, especially if you change structure or transfer ownership.

On the other hand, if you make a simple mistake with your taxes, it can cause you to lose your S corps status. Additionally, the IRS pays more attention to S corps to make sure that everything is properly reported. There are several tax obligations that can make S corps tricky – as such any navigation through the formation of this type of business entity should not be undertaken without a professional advisor such as Dunham Tax Professionals.

The other type of corporation is C Corporation. A C corporation is a business entity that is taxed separately from its owners. Businesses are incorporated differently in all 50 states. All C corps are required to issue financial statements.

Whereas S-Corporations tax shareholders individually, in C Corporations the business and owners are taxed completely separately.

Key features of the C Corporation are:

  • Limited liability – if something bad happens to the business, it’s seen as a separate entity from its owners and founders. This can protect business owners, so they are not liable if things go wrong.
  • Easier to raise capital – C corps are attractive to employees because of stock options. These options can help lure in top notch employees, especially when the business is first starting out and there aren’t a ton of funds for giant salaries.

C Corps have different requirements than other business entities. You must fill out more paperwork. In fact, you’re required to hold formal shareholder meetings and take notes on them. You need to spend more time dealing with taxes and nitty-gritty details than for other business entities. The corporate tax forms can be so difficult to fill out that you may need to get a business accountant, though this is a good idea no matter what kind of business you have.

As always, it’s best to consult a professional like those at Dunham Tax Professionals. Make an appointment today.


To LLC or Not to LLC: That is the Question

To LLC or Not to LLC: That is the Question

A previous post discussed the pros and cons of sole proprietorship in business. However, it may be the right fit for your business to form a Limited Liability Company – or LLC – which is a legal form of a company that provides protection and limited liability to its owners. As such, the owners are not personally liable for the company’s debts or liabilities.

LLCs are in fact, the easiest and most flexible business entities to create, and although the requirements for LLCs may vary by state (always consult a professional such as Dunham Tax Professionals to make sure you understand your state’s requirements), there are generally some commonalities across the board. The very first thing owners or members must do is to choose a name.

Once that’s done, the articles of organization must be documented and filed with the state. These articles establish the rights, powers, duties, liabilities, and other obligations of each member of the LLC. Other information included on the documents includes the name and addresses of the LLC’s members, the name of the LLC’s registered agent – owner/filer – and the business’ statement of purpose.

The articles of organization must be accompanied by a fee paid directly to the state. Paperwork and additional fees must also be submitted at the federal level to obtain an employer identification number – or EIN.

From a tax standpoint, LLCs are generally flow-through – which means that profits and losses fall to each member of the company and are reported on individual returns. The LLC as an entity does not pay taxes – which, however, may also prove to be a real disadvantage, though, depending on your perspective or circumstance.

Other disadvantages to the LLC may include: as a member of an LLC, you cannot pay yourself a wage or salary; high renewal fees or publication requirements can be pricey, depending on your state; and investors may be more likely to put their money into a corporation, making it harder to raise financial capital.

It’s always best to consult a professional to help you through difficult or confusing financial matters. Schedule an appointment with Dunham Tax Professionals today. We can help you through every step of the way.

Pros and Cons of Sole Proprietorship

Pros and Cons of Sole Proprietorship

So, you’re ready to start your own business, you say? You’ve got an idea for a great product or service and you’re good to go, or so you think. Business owners have a lot to think about already, but at the onset, consideration must be given to a couple of factors – because now it’s time to get legally recognized as a business.

A sole proprietorship is when someone owns and runs a business by themselves. This structure is the simplest and the easiest to understand. In order to form a sole proprietorship, you don’t need to take any formal action. You are a sole proprietor if you are selling your services for yourself and by yourself.

Of course, there are some definite advantages for the sole proprietor: With no one else to answer to, the profits are certainly all for you. As the sole proprietor, you maintain total control and flexibility to run the business as you see fit; sole proprietors require less capital to cover startup costs and creditors are more likely to extend credit if needed.

It is noteworthy that from a tax standpoint, there is no differentiation between you and your business, so you are taxed as one. You just use a Schedule C and a Standard Form 1040.

All of that could be great, but it’s also important to go over the same information from a different perspective. If you decide to go it alone as sole proprietor, there are some disadvantages to consider with that: With no one else to answer to, you assume full liability of the business, as well – all your debts are yours alone and creditors can go after your personal property to satisfy a claim if your business assets aren’t enough; banks may be reluctant to give loans due to higher turnover rates and usually smaller assets; even if you required less capital to startup, it may be more difficult for the sole proprietor to raise money for the long term needs of the business.

If this still sounds confusing, let Dunham Tax Professionals help you make sense of it all. Schedule an appointment today.

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