Getting Crazy With Business Entities and Taxes

Hello Mumbo Jumbo-ites!

Once again, your monthly infusion of legal wisdom, delivered like no other law firm...

So as you know, the deadline for filing corporate tax returns is March 15th.  This all begs the ever mystical question of taxation with entitization (I made that up) or how to manage business entites for tax planning purposes?!?

There are a number of key considerations to be addressed (the stuff they don't talk about on the cheapo web document sites).  Remember the old adage:   You don't know what you don't know.   Some key questions are as follows:

What kinds of assets (or income) are associated with the business entity?

What is the business purpose for the entity?

Are there unique risk management considerations related to the business purpose or assets?

What kind of maintainence do you want to have concerning the business entity?  In other words, how many annual reports or tax returns will you need to be keeping on top of on an annual basis?

How many members or shareholders will there be and what will those relationships involve?

Will there be a desire to add new partners or members or to sell partnerships or memberships?

The foregoing are just a few of the introductory questions that MUST be asked?

The foregoing questions will inevitably lead you to the question of whether you should be taxed as an S Corp (small business election under the Tax Code), a partnership or a sole proprietorship?

There are advantages to the S Corp status which may result in substantial tax benefits but there are limitations as to when this election should be used.  The key is the type of business income, the relationship between the partners and the amount of revenue generated by the business.  Whether there is an intent to raise additional investment capital is another key concern?

The take away here is that proper use of business entities may result in substantial tax advantages but a prudent review must be conducted prior to designing an appropriate strategy to meet your specific objectives and situation. 

More on business entities next time...

Until then friends...