What key tax laws should small business be aware of?

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According to USA Today, the Lakers are about to learn difficulties of family business.  And while I am sure that the Lakers have plenty of sound financial advisors in place, most small businesses must find answers to their tax and legal questions locally.  Perhaps from the Small Business Assistance Center for example at the “Breakfast at the BAC” speaker series.  Today we heard from: Nick Wanzor with Hartman Leito & Bolt, Michael Appleman with Cantey Hanger, and Derick Mesch with Mesch, McBride & Cooper on the current landscape of tax law given the presence of the fiscal cliff …or not.

What affect is the ‘Affordable Healthcare Act’ having on small business?

Basically small business owners are under regular business pressure to provide healthcare to their employees or risk not being able to attract and retain talent.  This is the reason, the panel members believe, that they have not seen many businesses even considering the option of not providing health care for their employees.

What are the effects of the expiring tax cuts?

The basic structure of the IRS tax structure is still in place.  Since it does seem that the rates may fluctuate over the next several years, the panel recommends talking with your CPA regarding specific deductions that may be able to be shifted to a lower tax year to adjust for this.

What is the best operating agreement for a small business?

The LLC is becoming very popular with small to mid-sized businesses due in part to:

  • Flow-thru Tax Treatment
  • Governance is Less Cumbersome
  • Multiple Types of Ownership are Possible
  • Allows for Flexibility

Factors that determine the best operating structure, whether a C-corp, an S-corp, a Partnership or an LLC, include state laws on liability, number of shareholders, types of shares and tax laws on debt, wages or profit sharing and deductions, just to name a few.  This is not a decision to enter into without professional advice.

What are the determining factors to consider when choosing a CPA firm?

  • #1 – will they return your call?
  • Are you comfortable with the CPA you will be working with?  Good communication is key to getting the most value from time spent with your tax advisor.
  • Are your colleagues, who are in a similar situation to you, willing to refer them?  Tax professionals are like any other service provider, word of mouth and great referrals are usually all you need.
  • Do your research. Find a firm with a solid level of expertise in the specific area in which you need assistance.

What are the biggest mistakes that client’s make?

  • Not understanding the rules of their operating structure in terms of flow of money and documentation.  Ie. wages vs. loans vs. guaranteed payment from structure.
  • Knowing what deductions to take or not.
  • Ignoring out-of-state sales tax.  Out-of-State taxes can be so confusing that some people outright ignore the issue.  Beware, this can become a huge, tangled mess, better to follow the rules up front.
  • Maintaining separate small business records.  It is important to keep your personal checking separate from your business checking…partly for your own sanity!
  • Not paying payroll taxes.  Unpaid payroll taxes can get so expensive that your business would have to close.
  • Filing regular income tax returns. Operating a business without filing income tax returns can result in fraud charges.
  • Have an exit strategy / succession plan.  This is something you want to build in to the structure of the business from the beginning not something you want to have to figure out under the pressure of time or cost.

The cost to go back, find and fix errors can be MUCH larger than spending the time up front to set up properly and learn the rules. The bottom line is that the best way to way to navigate through today’s complex tax code is to is to consult with a professional. As our panel reminded us,

“Setting your business up under the most beneficial structure and having a solid understanding of the rules of that structure can save you thousands of dollars in legal and professional fees down the line.”

Interested in learning more about Changes in the Tax Law?

 

Hartman Leito & Bolt – Nick Wanzor

Cantey Hanger – Michael Appleman

Mesch, McBride & Cooper – Derick Mesch

Business Assistance Center

Fort Worth Chamber

Other Online Resources for Small Business & Entrepreneurs Seeing Tax Information