Forming a C corporation to take advantage of fringe benefits when your business doesn’t fit the C corporation model. (Can you spell nightmare?)

Asset Protection and Business I.Q.

Question # 6: Which are reasons NOT to form a C corporation?

A) C corporations have lower tax brackets than individuals
B) Double taxation
C) Too much profit to reinvest
D) When a flow through entity may make more sense
E) Focusing on business expenses may be more important than fringe benefits
F) All the above
G) A and B
H) B, C, D and E

Costly Mistake Number 7:

Forming an entity in Nevada and NOT knowing when to foreign register, and for what reasons. (“Can’t you just get a mailbox?”)

Asset Protection and Business I.Q. Question # 7: Which are common reason(s) that would cause an entity to need to foreign register (or qualify) to do business in another state?
A) An employee in another state
B) An office located in another state
C) Equipment located in another state
D) An independent contract in another state
E) All of the above
F) A, B, and C

Costly Mistake Number 8:

Forming an entity and hiring independent contactors and employees WITHOUT knowing the rules. (It makes a difference as to which states you’ll need to foreign register.)

Asset Protection and Business I.Q. Question # 8: Which statement is false concerning employees?

A) They create less liability than independent contractors for your business
B) Employees create nexus for your company in the state they are doing the work
C) Your company will pay half of the 15.3% payroll taxes on each employee
D) The IRS is mostly attempting to convert employees to independent contractors

Costly Mistake Number 9:
Forming an LLC taxed as a partnership WITHOUT having an”official” partner. (Maybe the IRS won’t notice.)

Asset Protection and Business I.Q. Question # 9: What entity or person (assuming you are one of the partners) will qualify as a partner for an LLC taxed as a partnership?

A) A single member LLC owned by you
B) An S corporation owned by you
C) A C corporation owned by you
D) A foreigner
E) All of the above
F) B, C and D

Costly Mistake Number 10:

Selecting an inexperienced or disreputable company to help you form your entity. (There’s no excuse for not checking references with the BBB, local professional organizations and testimonials.)

Asset Protection and Business I.Q.
Question # 10: Which characteristics should be considered when choosing an entity formation company?

A) A company that has been in business for at least five years
B) A company that has a national known attorney
C) A company that has research and invests in internal training
D) A company that provides other business development services
E) A company that is recommended by top local organizations
F) All of the above

www.nvinc.com For more information call 1- 877- 515 – 0505 (local 702-367-7373) today!

Scott Letourneau is the founder and CEO of Nevada Corporate Planners, Inc. Over the past 13 years NCP has assisted more than 5,000 business owners form LLCs and corporations to get their business off to a fast start to profits™! Questions? Call NCP at 1-888-627-7007. www.nvinc.com

If you run a home-based business, you might be confused about what you can and cannot deduct as reasonable expenses. Some home-based businesses make critical mistakes and are red-flagged by the Internal Revenue Service. However, with a little guidance, you can start a business that will stay under the radar and keep you out of hot water:

Understand home office deductions. While you don’t have to have a separate room as a home office, the area you use must be used exclusively for conducting business. This includes a place where you meet clients, patients, or customers. You can also claim a home office deduction if you store inventory for your business. In the strictest sense of the word, a home office cannot include personal items, such as personal mail, your children’s toys, etc.

Incorporate your business. The IRS keeps an eye on home-based businesses. In fact, sole proprietorships, especially those that are home based business owners, are more frequently audited than corporations. One tactic that you can use to decrease your chance of an audit is to incorporate (form an LLC or corporation) your business. Incorporated businesses are audited far less frequently than home-based businesses. The IRS is more likely to question deductions in a home environment than a corporate setting.

Keep separate bank accounts for personal and business use. One of the biggest mistakes that small businesses make is to combine both personal and business expenses. Keep separate accounts for personal and business use. In case of an audit, it’s much easier to refer to an account that is used for one purpose than to wade through 12 months of personal and business expenses and attempt to separate them.

Deductions should be reasonable for your business. Avoid extravagant deductions. Another red flag for you home business is when the deductions are high in comparison to your income or the industry norm. Obviously, you’ll have deductions, but over-the-top claims will catch the eye of the IRS. If you have large deductions, keep the proof on file for at least three years.

Use specific amounts. Most costs don’t end in rounded numbers. Be specific. Rounded numbers imply estimates, and this could flag your business for an audit. Also, if you believe that a deduction will flag you for an audit, attach proof to substantiate your claim.

File online. Math errors are another audit magnet. While one small error probably won’t create a problem, multiple errors will most likely bring attention to your business. When you file online, the software will do the math for you, eliminating the margin of error.

Don’t underreport earnings. Keep in mind that in this technological age, the IRS can easily find your earnings. Don’t be tempted to underreport your income, or you could find yourself at the losing end of an audit.

Run your business like a business, not a hobby! Use some type of accounting software to track your monthly revenue and expenses so you can track your profit and loss. Running your business based upon your online checking account balance and “let’s just see how it goes,” sounds more like a hobby to the IRS vs. a real business.

Operating a home-based venture is a rewarding experience and doesn’t have to create IRS headaches. Know the tax laws, keep good records, and your home business will thrive. For more information about what you can and cannot deduct as a business expense, go to the Internal Revenue website and download Publication 587: Business Use of Your Home.

Donald Trump says that if you want to be a millionaire, you must get your tax affairs down to the legal minimum.

Money Mastery is a book written by a gentleman named Alan Williams, who said the exact same thing.

There are a lot of reasons for that, but Donald Trump used a slide in a presentation that he allowed my friend Sandy Botkin to use that inspired this article. It’s a very interesting slide. It shows what happens if you’ve got a dollar that doubles every year.

Ok, you start with $1. At the end of year one, it becomes $2. At the end of year two, that doubles and becomes $4. At the end of year three, it becomes $8. At the end of year four, it becomes $16. At the end of year five, it becomes $32. It just keeps doubling.

When you get to 20 years, it is $1,048,576. That $1 bill doubled for 20 years is now worth over $1-million.

Now, watch this. Same dollar doubling, but let’s assume you’re in the 35% bracket. You pay 35% of what you make in taxes, and you add all of the income taxes, the state income taxes, the capital gains taxes, the sales taxes, the transfer taxes, the property taxes, I can go on and on, the hotel taxes, the internet taxes, and gasoline taxes. And 35% is actually conservative.

This time take taxes out of the doubling effect, take that dollar and double it, instead of it being $2, like in the other example, it’s only worth $1.65 because you’ve got to pay at least 35% of that in taxes. And the $1.65 doubling isn’t $3.30, because you’ve got to pay part of that in taxes. It’s only worth $2.70.

Even though it is the same dollar doubling, but now with taxes, take a guess how much that’s worth at the end of 20 years. Remember, the other one was $1,048,000 without taxes. Take a guess how much it’s worth with taxes each year?

Would say probably around $600,000?

Try again. Maybe you’d guess $400,000?

Nope, $400,000 is too high, go ahead give it another shot and try again.

Can’t be less than $300,000 can it?

Much less!

Is it $200,000, less? You’ve got to be kidding! How about $150,000?

Not yet, keep going, one more guess…Less than $100,000?

Yes, much less. You’re never going to get it. It’s $22,370.

That is amazing.

People, you may think I’m crazy so go try it out on your calculator or accounting program and you’ll find its true.

The reason it’s true is not only do you lose 35% on everything you make, but here’s the important point, you also lose all of the interest, all of the compounding year after year.

That is why it’s worth only $22,370. There is nothing more important than tax planning, absolutely nothing. It’s better than a raise. It’s after-tax money.

Sandy Botkin is a former IRS attorney with real IRS experience, as well as a CPA. He was also a trainer of IRS attorneys. Sandy was involved is a lot of the stuff that goes on with audits and things like that. Plus, he was one of the founding members of the IRS Tax Shelter Committee, which is why the initial IRS attack on tax shelters was really because of Sandy and five other guys.

Mr. Botkin is an author of the best-selling book called Lower Your Taxes – Big-Time, and if you look at it up on Amazon.com, it is the highest-rated tax book on Amazon. You won’t find anything rated higher than Lower Your Taxes – Big-Time.

Sandy immediately dove into myth number one during our interview. He stated that some business owners think, “I’m only making $20,000 or $30,000 this year. When I make $150,000, $200,000, $250,000, that’s when I’ll go to a tax seminar or that’s when I’ll learn about tax planning”.

Sandy went on to explain, “That is so wrong. Because if your business generates a loss, as long as you’re running your business like a business, not like a hobby, that loss can be used against any form of income you have – interest, dividends, wages, rents, pensions, anything”.

He continued with, “Let’s say the loss exceeds your income for the year. You can carry back all business losses up to two years, and get a refund from the federal and state government for the last two years of taxes that you pay. Or, you can carry forward all business losses up to 20 years, and offset the next 20 years of earnings”.

Later he explained that the same thing holds true with S-corporation people, except there’s a little more planning there because you have to have sufficient basis. But the same rules apply.

This second myth he felt was even bigger than the first one. He described it in only seven words and stated it’s the number one financial planning mistake in North America. Sandy then proclaimed, “I will promise you this costs more Americans to lose money than any single financial planning mistake. And yes, you’ll never read it in any book around, except in my book, Lower Your Taxes – Big-Time. That myth is; my accountant takes care of my taxes. I have a similar myth; my spouse takes care of my taxes. It can’t be further from the truth”.

“I sort of equate that with a doctor taking care of our body. Would’t it be great if we could eat all of the cholesterol and all of the fattening foods, and once a year we go to a doctor’s office and we get one of these rooter-rooter jobs, Scott?”

In less than 4 minutes Sandy had exposed two of the most dangerous myths facing business owners around the country.

Thinking you aren’t ready for serious tax help and then thinking that your tax preparation specialist or spouse is going to “take care of everything for you”. As you just read; Sandy looks at taxes as a financial planning tool, not just a necessary evil we all must deal with every April 15th.

Description

After interviewing one of the foremost authorities on taxes, I decided to put an article together that exposes two great myths. This article is based off a transcript from an Interview I did with Sandy Botkin. Enjoy.

About the Author (text)

Scott Letourneau is the CEO of NCP,Inc. and an authority in helping people form entities,grow their business,and protect the assets of that business. For more info contact: Scott Letourneau at 702-367-7373 or http://www.nvinc.com/save.htm

The Easter Bunny has received horrible news just days before he is scheduled to make his egg-hiding rounds this year. The IRS is cracking down on Sole Proprietors, such as The Easter Bunny, The Tooth Fairy, and possibly even Santa Claus regarding excessive tax write offs, especially in the mileage claimed for business use.

These characters apparently never set up the right corporate structures to protect themselves and decided to operate as the most simple business form, the sole proprietorship.

Unfortunately, the sole proprietorship has the most liability, least tax benefits and the most possibility of negatively affecting ones revolving debt and future ability to develop business lines of credit. Even the Easter Bunny can not afford to ruin his personal credit by using personal credit cards to finance his Easter Egg Business!

Why is a sole proprietor most likely to be audited?

The IRS believes there is a $300 BILLION tax gap — $300 BILLION in uncollected taxes — each year! The biggest culprit? Not large corporations, but small business owners. In fact, sole proprietorships are 300% more likely to get audited than someone who does not file a schedule C!

It is important that any business owner also document their records properly. In fact, the Easter Bunny may have excessive claims of business mileage especially since he has never owned a car.

Solution: Run your business like a business. Document all your business expenses, use QuickBooks® or some other accounting software to operate your business, and DON’T operate as a sole proprietorship! Incorporating is a much better approach.

Scott Letourneau of Nevada Corporate Planners has been called by the Famous 3 to see how they can correct their situation for the future. Mr. Letourneau says, “The Easter Bunny has concerns also over protecting his Egg-sets (Assets) and his business that just can not be done in his current Sole Proprietor Status.

Update: A drunken Leprechaun faced an IRS audit this week for similar reasons and did not fair well after St Patrick’s Day!