business structures

For years, we’ve had the same basic business structures and I could recite the answer to any business structure question in my sleep:

Bad Structure: Sole Proprietorship

Really Bad Structure: General Partnership

Good Structures: Limited Partnership, S Corporation, C Corporation (and then the Limited Liability Company was added)

The LLC added the first wrinkle. It could elect how it wanted to be taxed. And then the LLC asset protection laws were shored up and suddenly the LLC was the answer to everything. We started then talking about:

One of the most frequently-asked questions I get in my business is about resident agent service - what it is, and when it’s required. In many cases people enquire about whether or not they can act as their own resident agent. The quick answer is “yes.” The longer answer is “it depends.”

I had an interesting conversation with a new client the other day about asset protection. We were discussing whether you really could make yourself personally untouchable by third-party creditors.

Ultimately, I think that the average person can make it very hard to be touched by creditors, but I’m not sure if untouchable is always possible. Here’s why:

One of the most misunderstood loopholes for income splitting is by the use of a C corporation.

C corporations are completely different from LLCs, S Corporations, Sole Proprietorships and Limited Partnerships. The biggest difference is in how they’re taxed. C Corporations file their own taxes. As an owner, you don’t get a K-1 that flows income through to your personal return. The corporation pays taxes at its own level.

As a business owner, how do you feel when you see a competitor making misleading or flat-out wrong representations about how your industry works?

In the field of business formations and maintenance, the idea of the “Nevada virtual office” as a tax-saving solution for people living outside of this state has been around for as long as I can remember. The problem is that claim is largely … untrue (I’m not allowed to use the first word that came to mind). Fortunately, one of the things I love about having my own business is that I get to stand up and shout the truth as long and loudly as possible!

Sometimes I feel like I’m beating a dead horse about the need to have a business structure when you hold real estate. I figure I’ve been talking about it practically non stop for 20 years now. Surely everyone has heard it by now?

Then I heard someone saying that “someone” told them they only needed insurance and probably not even that for their property. I ended up going round and round on the issue. There are times I feel like just giving up on it. I want to say, “Fine! Don’t have a business structure. Maybe you’ll be lucky.” But it always bugs me. Well, I heard a story that made me realize how important it is to get this information out…even if people don’t always want to hear it.

Are You Protected if the Unexpected Happens?

I frequently get a question that starts with “I formed a Nevada LLC (or Corporation) so I don’t have to pay state income taxes and …” I don’t even listen to the rest of the question since I have to stop it right there. That’s because a NV business structure generally does NOT save you taxes, no matter what the promoter who sold you one tells you. The reason is something called “nexus.”

If one C Corporation is a good thing, does that mean that two is double the fun? No! In fact, this is a mistake I’m starting to see more and more of with new clients coming in. I think what happens is that they go to so-called corporate specialists that are more like corporation mills … grinding out more and more corporations.

The one thing I love about tax strategy planning is that it never gets boring. This year, 2007, looks to be a very interesting year. That’s because you can throw almost all of your old tax plans out the window if you’re subject to AMT (alternative minimum tax). If your income is over $50,000 for 2007, don’t ignore AMT — you might be subject to it this year.

The best sure-fire way to avoid or minimize AMT is to have a business. And that’s why tens of thousand of people are rushing to start a business before year end. Of course, you have to do it legally — and that’s why I’m featuring what it takes to have a business in the eyes of the IRS so you get all those deductions in this month’s First Class Lounge. There is one more wrinkle to having a business — how do you protect your assets and pay less tax at the same time?

The whole point of putting structures in place to hold your assets and businesses is to protect you from your business, and vice-versa. But where single-member LLCs (SMLLCs) are concerned, the wall of liability protection isn’t always as thick as we want it to be.

How Thick are the Walls of Your LLC?