Has Your Small Business Had its Midyear Checkup?
It’s time to examine your business entity.
Now that the year is halfway over, with tax filings mostly behind you and systems (hopefully) in place, it’s a good time to reflect on the months that have passed. What’s working and what isn’t? What’s your plan for the rest of the year?
So many small business owners just run on autopilot, taking the path of least resistance and doing what they’ve been doing because it’s easier. But what if what you’ve been doing is putting you at risk or costing you money?
I recently read that about one quarter (24 percent) of consumers felt they had too many subscription services. The problem is that with all these subscriptions, money is silently draining out of our bank accounts, yet cancellation is often such a hassle that people will pay hundreds or even thousands of dollars for services they rarely use. In this case, the path of least resistance takes a considerable toll.
It’s possible that the legal entity you’ve selected for your business could take a toll on you as well. That’s why this is the ideal time to schedule a midyear legal checkup for your business, to take its pulse and determine whether the entity you’ve established is working for you.
Did you know, for example, that an LLC owner cannot be on the payroll? Surprisingly, about half of the business owners don’t know that. Not only can an LLC owner not be paid through a payroll service, but an LLC owner also cannot issue him/herself a W2. The IRS only allows LLC owners to take guaranteed payments — a rule that very few business owners are aware of.
Facts like this can make all the difference in how your business operates. Especially with the new tax laws that just went into effect last year, it’s even more important to choose the right entity for your business.
Small businesses usually can choose from among the following four types of business:
- Sole proprietorship
Each one has its own rules pertaining to liability, tax burden, payroll, and more. There is no black-and-white, one-size-fits-all answer; each of these options has benefits and disadvantages, and depending on the type and size of your business and how it operates, one entity may be a better fit than the others. For example, an LLC often works better for a rental company or a holding business, whereas S-Corp is usually a better fit for restaurants. But the only way to really know what’s right for you is to talk through it with a knowledgeable CPA.
When you schedule this appointment with our firm, we’ll have you bring in just a few pieces of financial information. Then we’ll evaluate your business individually. We’ll consider your revenues, your number of employees, and your future plans, such as how long you plan to be in business and whether you plan to sell later. We’ll also look at how many fixed assets the business has — some companies are asset-heavy, with equipment and buildings, whereas others might only be a single person working on a computer. And we’ll consider your estate or succession plan for the future. We’ll talk through the payment expectations, liabilities, and personal factors; we’ll go through the benefits or disadvantages of employees (W2) and contractors (1099). And we’ll let you know how each choice of entity fits your business in light of the new tax laws.
Once we help you decide on a plan, we can process that paperwork right away and act as your registered agent so we can speak on your behalf with the IRS, taking that extra burden off your plate.
Come talk to us about how your business can start working harder for you.