Posts Tagged ‘LLC’

The easy money is gone……so get over it!

Posted By Administrator

Date: January 28th, 2009

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Category: Articles

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I don’t mean to be insensitive because I know the economic challenges are tearing lives apart as we speak. However it must be known that these problems were all caused by people chasing the fast or easy money. The late 90’s and early 00’s it was stock regardless of fundamentals. Then it was real estate regardless of the fundamentals. Now its the bank because they forgot the fundamentals. Now its the consumers because they forgot the fundamentals of living on borrowed credit at lifestyles they could not support.

Where ever you fall in all this as a Small Business Owner you must realize, that from this point forward you need to be better. That means the previous tried and true business methods need to be reanalyzed or possibly trashed all together. It means growing when everyone around you is shrinking. Now this is not to say every business has this opportunity, but if you do, you have to realize your businesses survival depends on you, what you do, and who you get help from.

One place to start is tax planning. Most people confuse this with tax preparation and they couldn’t be more wrong. Tax planning for small businesses is a major project. Why? Because there is so much at stake. From month to month your running losses, then profits, then losses…….and then get to the end of the year and you scream yes we made money. Problem is you probably didn’t tax plan with that money. Now say you are a (non corp) LLC and you earned 100,000 in this scenario. Now right off the top the government is going to take almost $16,000 in self employment taxes. No that’s not all, they are then going to tax the 100,000 again for federal and state taxes. Consider yourself lucky if you walk away with 60,000.

No what if I said at the beginning of the year we need to change your filing status, and draw down a reasonable salary until year end at which point we can pay you a bonus because your going to have a great year. The year goes by and we end up with making the same $100,000. But something amazing happen, you save over $6000 (or more) in taxes just because I helped you adequately plan at the beginning. During the middle when you were loosing money and saying this guys an idiot for having me take a salary……..however you came around in the end and are at least $6000 (or more) to the better for it.

This of course is just and example, but an example that happens ever day to clients everywhere. If your up to taking on the challenges of getting your business profitable…….we can help. That means getting down to business and working harder (remember the easy money is gone), it means analysis prepared by a licensed professional with experience in these types of matters. Try asking that of your bookkeeper or bargain basement tax preparation service.

If you looking for the bottom dollar tax preparation and planning then we are not for you. But if your ready for intelligent insight on how to take your business to the next level than you owe it to yourself to just give us a call at 443-927-9161. We offer a free in person consultations and are giving new clients a 25% off towards there 2008 individual tax return.

Thanks
Travis

The SE (Self-Employment) Tax Danger of Forming an LLC

Posted By Administrator

Date: December 25th, 2008

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Category: Articles

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With the ease and low expenses of forming an LLC, they are quickly becoming the entity of choice of many small business owners. However this type of entity can have some serious drawbacks if you simply form it without seeking some expert advice.

One of the more common mistakes I have been seeing is individuals forming LLCs and assuming they are corporations. In fact they are not taxed as corporations if formed by one individual and instead are treated as an ignored entity for tax purposes. Further the income they generate gets taxed on your personal tax return on Sch C and is subject to SE (Self-Employment) Tax. There are some circumstances where this does not apply, but generally if you run a business with the intention of generating a profit SE Tax applies.

So what is the big deal with SE Tax. Well this is the Social Security (6.2%) and Medicare (1.45%) (also known as FICA Taxes) that are normally deducted from your regular paycheck……..only doubled. You might ask why are they doubled. Well as a self-employed individual you are responsible for the employee and EMPLOYER (same as amount as the employee) share of FICA. No wait it gets worst. Unlike your regular income taxes, SE tax is not reduced by itemized deductions or tax credits.

So how is it calculated? You take your Sch C net income and multiply it by 92.35%. This is your net earnings from self-employment. Next multiply this amount by 15.3% and your have your SE Taxes due. The only real benefit is that you get to deduct 1/2 of the self employment taxes as a deduction on your 1040. But remember this simply reduces your taxable income, this is not a tax credit. You then add this tax with your regular income tax liability to arrive at your total tax liability. SE Tax in many cases can easily equal or exceed your regular income taxes, and if you do not plan correctly can lead to a huge tax headache at year end especially if you were expecting a refund.

So what can you do? My best advice is to contact me and for FREE I will tell you some of the options you have at your disposal. I can reached at (443) 927-9161 (MD), (703) 637-9881 (DC & VA), or by email at travis@ramlcpa.