A client wanted to turn invoke an S-Corporation election for tax reasons. The only problem was that he was about two months too late for the current fiscal year. Ten years ago, that would have been a large problem, but with the IRS’s new positions, that problem is not so big. Recent regulations have been issued that allows shareholders relief in late elections.
But, if you want to elect an S-Corporation, make sure that you have looked at all aspects like personal tax benefits, you tax basis for taking losses, medical costs deductions, etc. Most business persons only look at the first benefit and disregard the rest. If you are into the minutia, here is an interesting, but technical article from the AICPA.
Above all, if you elect to be an S-Corporation, play by the rules. I wrote a blog on this not too long ago. Take a look at it for some advice, but always consult a tax advisor regarding your particular situation.
Chances are, you are reading this blog because of our social networking efforts. Nice to meet you.
But, does that really matter? I mean, I am passing on information, but is social medial market really worth the time (and money if you hired a consultant or employee)? Check out this Inside Edge article that sheds some light on this question. But while you are reading that, I’d like to look at it from another point of view. I believe immediate ROI(return on investment) is not always the answer. The answer to this question lies in your horizon and, yes, history itself.
First the history. When I was a teenager (mid 1970s, OMG!), the yellow pages were my stepfather’s lifeline to his plumbing business. He would struggle on how much to invest, how big the ad, and which telephone books to appear in? The cash outlay was staggering for a small business. But he had to do it with the hope that some lady, who had sewage leaking from her ceiling, would find his ad, and call him in a panic. His horizon was short because the likelihood that this customer would have another plumbing problem, or find his number again, was remote. If the calls did not come in during the twelve months that he advertised, he lost his investment. During most calls, he or his plumbers could not build a lasting relationship. They just fixed the immediate problem.
Secondly, your horizon. Social networking is different. The whole medium is designed to build relationships. In addition, once you place an article, ad, or so forth in the viral-sphere, it lasts forever. You may be reading this blog on November 2011, one year after I posted it. So, the horizon is stretched beyond your eyesight. The longer the horizon (along with the timeliness of your information), the more likely your ROI will multiply. Combine this with SEO (search engine optimization), and your chances increase dramatically.
Lastly, If you are thinking of using social networking or SEO, keep in mind that you are on the edge of a new fronteir. You will be an industry leader. There are wagon ruts in the desert, but not all of them lead to Santa Monica. Some lead to Donners Pass. This is why you must constantly check your compass, map, and ration your provisions.
Hold on to your small business hats, things are moving even faster. Google Inc. Chief Executive Eric Schmidt said Monday that the smart phone will eventually replace the credit card. This may come as a surprise to you, but Bill Gates predicted that and a lot more over 15 years ago in his book, The Road Ahead. This advent of technology will have a lot of challenges to small business. Some of the issues are things like, will a business have to pay any credit card fees for the transaction? Obviously there shouldn’t be one of the merchant charges, because the phone may not be using the small business merchant’s number. What about security? If someone uses a stolen phone, can they access the owner’s bank account to purchase small business merchandise? Will the small business retain the same security as a credit card transaction?
The small and medium sized businesses should be looking at these developments closely, but not just compliance issues. This type of new technology could give a small and medium sized business a competitive advantage over their rivals. How? Let’s assume that these transactions will not impact the small business as much as a credit card transaction. That translates into a savings to the small business, and maybe the consumer.
Or, what about a small business advertising that they accept I-pad credit purchases? That service can bring customers into their establishment. Small and medium sized businesses can process their purchases without high-interest charging credit cards.
Small businesses must look at as many technological advancements as possible and ask the question, “How can this technology create a marketplace where the competition becomes irrelevant?” The small businesses that jumped on the first ATM machines created an edge for a short time. Now, you don’t need them.
A recent Los Angeles Times article discussed why emerging small businesses need to engage in tax planning. The article rarely alluded to CPA’s as the solution. Instead, the article attempted to educate the small business person with some facts that a CPA could tell them in five minutes.
As a CPA, musicians used to be that my biggest challenge. With the advent of new technology, and so many people going into business, the challenge has changed to “ma-pa businesses. Musicians, of course, have the reputation of wanting to play their music and not be bothered with the mundane business end. That is still true in my CPA practice, but at least some musicians ask questions and want to understand what is happening with their money, and why. As a CPA, I applaud this.
In regards to ma-pa businesses, they are experts at the service or product they provide to the public. They seen to focus on two things: “What are my sales?” and “Do I have enough money to make payroll?” They are too inundated to engage a CPA strategist to help them plan for the future. (Read the E-Myth for a good example).
As a CPA, another issue with ma-pa businesses, is that they may not listen to tax advice. Some business owners tend to think that a CPA is against them because we tell them that they cannot deduct personal expenses. These deductions can be very dangerous for the business owner, and CPAs since we sign the tax returns. Secondly, it is bad from a business planning strategy because the business owner can never know the true health of their business. Lastly, hiding personal expenses in a business also reduces the small business owner’s income when it comes time to qualify for a loan. There are legal ways which CPA’s reduce taxes.
CPA’s can make a huge difference in a new business if brought in early. That is why many new business owners have taken advantage of our free one hour consulting offer.
Retirement Plan! I can’t even make ends meet. I can’t use bread and butter money to stash away for the future!
Sometimes, that is statement I hear from individuals and business owners. So many just struggle through the daily grind, and don’t think about their retirement. Some small business owners think they have a good plan, i.e., place the entire risk on their business. When they are old enough they will sell the business to finance their retirement. Both of these positions are alarming, and are missing the biggest advantage to a retirement plan: time. When you invest tax deductible money in a retirement plan, it grows tax free over many years. If done correctly, compounding growth can set you up for a nice nest egg when you need it.
Ok, so I got your attention, sort of. But which retirement plan? Well, the AICPA has launched a nice tool to help you decide. Check it out.
A client wanted to turn invoke an S-Corporation election for tax reasons. The only problem was that he was about two months too late for the current fiscal year. Ten years ago, that would have been a large problem, but with the IRS’s new positions, that problem is not so big. Recent regulations have been issued that allows shareholders relief in late elections.
A recent 