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A small business blog featuring tips to help entrepreneurs succeed in the small business world. Topics include family business, human resources, marketing, money, networking, operations, ownership, startup, taxes and technology.
IRS Puts Small Business Under the Microscope

There’s a new(er) IRS commissioner in town, and he’s doing some extra cleaning. Mark Everson, who took office in March of 2003 has made security his main focus of the IRS. And now small business is facing increased scrutiny.

Enforcement is taking the main stage due to the tax gap currently sitting at about $345 billion. This amounts to all the money that is missing due to non-filers and those who claim the wrong income and don’t pay correctly.

Small business audits more than doubled in 2005, an increase to 17,867 from 7,294 in 2004. Some small business owners have voiced a strong disagreement with the audits, claiming it unfair that small businesses are being targeted and will face penalties for small or unintentional mistakes. Large business owners also have the advantage of the financial ability to hire highly-paid accountants to fend off those mistakes.

Everson feels that a focus on small business will help to minimize the national deficit and avoid possible tax increases in the future. 80% of the tax gap is a result of under-reported income and the majority of culprits tend to be small businesses.

Some experts believe that the funds the IRS is using for enforcement could be better spent on educating the public on an increasingly complex tax code. After all, chances are that the IRS may not even see the revenue they expect to find in small business audits to make up for the funds spent to find it.

Everson claims that there is nothing to fear if you are doing your best to report your income and expenses accurately come tax time. Nothing to fear, that is, except for the time an audit takes away from your business.

Sources:
• MarketWatch.com: Last-minute tax tips for Schedule C filers
• GovEXEC.com: IRS enforcement activities bring in record revenue


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By Michelle Cramer
Wednesday, February 21st, 2018 @ 12:00 AM CDT

Taxes |

Which Business Entity is Right for You? (Part 4)

PART 4 — PARTNERSHIPS

The first thing you should be aware of when it comes to General Partnerships, whose owners are known as GPs (general partners), is that it is managed by all partners and all partners are liable for the negligence and/or debts of the business.

Each and every partner has a say in how the business is run and, even if only one partner makes a mistake, each and every partner takes the heat for it. Of course, this liability is only a problem if you or your partners cannot be trusted to run the business.

Partnerships are often used when franchising a business or when all partners contribute equally to the success of the business, such as a law firm. Taxes are paid through each partners personal income tax. There are no costs or formalities for designating your business as a partnership entity, and the only document required is a Partnership Agreement, which is crucial and should include:

• Amount each partner will invest in the business and when said investments will be made (upfront, annually, etc.);
• Rights and duties of each partner;
• Method for distributing profits and sharing in losses;
• Policies regarding withdrawals of the business assets;
• Designated division of the business profits among members;
• Policies and methods for dispute resolution;
• Policies and methods for including a new partner;
• Method for dissolving the partnership, when and if necessary.

Typically profits are divided equally among members, but you can designate otherwise in your partnership agreement. Keep in mind that giving one partner a larger percentage of the business assets does indicate that they have a stronger say in the decisions regarding the operation of the business. It is usually in the best interest of all involved to stick to equal distribution.

A partnership lasts only as long as a good relationship between partners. It can be dissolved if the partners no longer wish to work together using the methods indicated in the partnership agreement, which can include the sale of the business as well as dismissing one member and bringing another in.

Partnerships also have the option of including one or more limited or silent partners (LPs). LPs are individuals who invest in the partnership but, based upon the Partnership Agreement, are limited in their involvement in the operation of the business. Also, LPs’ legal liability is generally limited to how much they invest, so they can basically reap the benefits of the partnership (i.e. profits) without being responsible for the debts.

It is important that you examine all of the available options for business entity designation and determine which is best for you and your business before you get the ball rolling. Please consult with a lawyer before before making any legal decisions.

Part 1: Sole Proprietorships
Part 2: Corporations
Part 3: Limited Liability Companies

Sources:
• Entrepreneur.com: Business Structure Basics
• Start-a-Business.com: General Partnership
• AllBusiness.com: Corporation, Partnership, or an LLC?
• About.com: Partnerships
• Wikipedia.org: General Partnership and Limited Partnership


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By Michelle Cramer
Tuesday, February 20th, 2018 @ 12:00 AM CDT

Business Law, Startup |

Which Business Entity is Right for You? (Part 3)

PART 3 — LIMITED LIABILITY COMPANIES

Limited Liability Companies, or LLCs, combine several features of Corporations and Partnerships, but are neither. Often people call them “limited liability corporations,” but that is incorrect. The owners of an LLC are termed “members” rather than partners or shareholders. The number of members is unlimited and can be a combination of individuals, corporations or other LLCs.

LLC members are not held liable for the negligence and/or debt of the LLC they have ownership interest in, unless they sign a personal guarantee. Like a corporation, an LLC is an entirely separate existence from the individuals involved.

Another benefit is that there are fewer requirements for an LLC. It is not necessary to keep meeting minutes or record resolutions, as in a corporation, and you are not required to have a board of directors or make officer designations for the members.

Some states do have minimal requirements for an LLC, but what those are varies from state to state. Typically, you are also required to file Articles of Organization and Operating Agreement when registering your business as an LLC.

The designated distribution of income to the members is entirely flexible, leaving the division to be anywhere from 50-50 to 10-90, and, of course, open for division among any number of members.

As a member, you also have much more access to the assets of the company. You can take assets out for personal and/or business use without incurring tax liability. Owners also have more leeway when it comes to writing off business losses when associated with an LLC.

The lifetime of an LLC is limited. If any member dies or files bankruptcy, the LLC is dissolved. Additionally, an LLC is not nearly as appealing to possible investors, so if you are considering going public with you company, or issuing shares to your employees someday, an LLC is not the route you should go.

However, if legal liability protection and one level of taxation are primary concerns for your business owners — who consist of multiple and diverse individuals and/or businesses — than an LLC is probably just right for you.

Part 4: Partnerships
Part 1: Sole Proprietorships
Part 2: Corporations

Sources:
• Entrepreneur.com: Business Structure Basics
• About.com: Limited Liability Company 101
• Start-a-Business.com: Limited Liability Company
• AllBusiness.com: Corporation, Partnership, or an LLC?


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By Michelle Cramer
Monday, February 19th, 2018 @ 12:02 AM CDT

Business Law, Startup |