Hi!

As business owners, most of us default to the s-corp structure for a variety of reasons:

• Initially lower taxes
• Low audit rate
• Ease of transition

However, there are a series of situations where an alternative or creative structure can make quite a bit more sense.

C corp benefits:

• If you know you will be searching for angel investors/private equity, they will often require a DE state c-corp structure
• If you will be selling the business, your capital gains are excluded up to $10 million dollars under the qualified small business stock program
• You can reinvest in the business without immediate tax liability at the shareholder level, fostering faster expansion options

Single-Member LLC benefits:

• You get taxed like a sole proprietorship, meaning your business income is only taxed once on your personal return
• It’s simpler to manage with fewer forms to file and less paperwork
• It’s easier to sell the business compared to an unincorporated business
• This makes your business look more legitimate to other businesses, such as lenders, banks, etc. vs. a sole proprietorship with no LLC

Partnership (or Multi-Member LLC) benefits:

• Your business income is only taxed once, saving you money compared to c-corporate taxes
• You can share profits and losses among members in flexible ways, which helps manage cash flow and taxes
• Members’ personal assets are protected from business debts and lawsuits, meaning your home, car, and savings are safe

Combined structure benefits:

• Combining an LLC with an S-corp allows you to take more of your income as distributions rather than salary, reducing self-employment taxes. Plus, you can easily use the home-office deduction while benefiting from lower S-corp taxes.
• Creating a holding company as an LLC with subsidiary S-corps helps isolate liabilities and protect your assets.
• Using a C-corp for parts of your business that need significant reinvestment (like R&D) while using an S-corp for profitable parts can optimize your overall tax strategy and make it easier to distribute profits.
• Stacking a C-corp with an S-corp can create a separate “retirement” savings account that can be distributed later at a lower tax rate.

If you need help with more creative ways to structure your income, now is the time to act while we still have time for implementation. You do not have to have a high-income business to take advantage of these. Even 1099 contractors can use these strategies safely.

Please contact me this week if you need to book a spot prior to the busier extension season.

—

George Dimov CPA

www.dimovtax.com

(833) 829-1120 toll free