Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Apr 29

    One of the first questions we often get from budding entrepreneurs is, “What type of business should I be?” and the answer is always…

    “That depends.” When starting a new business, it is important to begin with the right type of entity for you. There are several considerations to think about when deciding what type of business entity to use for your new business. Each type of entity has its own unique features. Some factors to consider include:

    • How do you want profits and losses to be treated?
    • Should it be easy for the company to allow owners to sell or transfer their ownership?
    • Are you concerned with personal liability?
    • Do you want it to be easy to withdraw cash from the company when it is available?

    All of these are important questions to ask and each answer narrows the type of business entity you might want to become.

    There are four common entities. Each of the following business entities has its own formation and operating requirements:

    • Sole proprietorship
    • Corporations

    * C and Sub Chapter S

    • Partnerships

    * General Partnership

    * Limited Partnership

    • Limited Liability Companies

    A sole proprietorship is the quickest and easiest entity to form. You just start doing business. However, the owner assumes all responsibility for operations and finances. In addition, the owner assumes unlimited risk of his personal assets. The income is taxed at the individual owner’s tax rate and self-employment taxes are paid on the income.

    C Corporations are separate from the owners. It provides the shareholders with the most protection from personal liability. The income is taxed at the corporate level. The income is often referred to as being “double taxed”. This is because the corporation pays taxes on the income and any distribution from the company is taxable income to the shareholders as well. The S corporation is similar to the C corporation with the exception of double taxation. All income flows through to the shareholders and taxed at their respective income tax rates.

    General partnerships simply require an agreement between two or more individuals to jointly own and operate a business. Income and management is shared among the partners and each partner is personally liable for the debt of the partnership. The income is reported on each partner’s tax return based on ownership. The limited partnership offers some of the partners limited liability. The general partner, who assumes personal liability, manages the partnership and the limited partners contribute capital, but have limited liability and assume no role in management.

    Limited liability companies are a hybrid type of entity with characteristics of both a corporation and a partnership. The company is run similar to a corporation with members/owners owning and managing the company and the income is “passed through” to the individual owners and taxed at their individual income tax rate.

    There is no one right answer to the question “What type of business should I be?” Contact us today if you’d like to review your business formation options from a tax standpoint. We would be happy to help you understand your choices.

  • Apr 15

    Note: I’m always on the prowl for ways you can save on taxes. I found this interesting article, “5 Tax Tips that Will Save You Big Money” by Katie Morrell.  It was published February 15, 2011 on AmEx Open, a small business forum. Admittedly, I found it most interesting because of the small business tax expert it quoted. That would be me.

     Are you worried about tax season?

    Fear not. There are tons of ways for small business owners to ease the pain – ranging from new credits to oldie-but-goodie deductions.

    Here are five tips for saving money (and lots of it) come April 15.

    To read the full article, go to http://www.openforum.com/idea-hub/topics/money/article/5-tax-tips-that-will-save-you-big-money-katie-morell or go to our website, ZevacLindsey.com, click on the newsletter section, open the story titled Your Small Business Tax Expert and click on the link there.

  • Apr 8

    Owning your own home is said to be a part of the American Dream. Although not the reason for purchasing, your home can be the source of several tax breaks that you should know about. Some are deductions that are only available if you itemize your deductions on Schedule A, others are tax credits that can be taken whether you itemize or not. 

    Here are the top 10 tax breaks for homeowners this tax season: 

    10. Homeowners may deduct the interest on their mortgage (up to $1 million in indebtedness) as an itemized deduction. The interest can be on their primary residence and one additional residence.

    9. Homeowners may also take their state and local property taxes as an itemized deduction.

    8. If you rent your residence for fewer than 15 days during the year, then rental income is excluded and no deductions attributable to such rental are allowed.

    7. Points paid on a home mortgage loan for the purchase or improvement of a principal residence are deductible in the year paid to the extent that the points represent a customary practice in the area. Points paid on a refinancing loan must be deduced over the term of the loan.

    6. Homeowners can exclude up to $250,000 ($500,000 for joint filers) of gain on the sale of the homes if they have owned and lived in the home as their principal residence for two out of the last five years prior to the sale. The periods of ownership and occupancy do not have to coincide.

    5. Through 2010, mortgage insurance premiums may be deductible as mortgage interest if the mortgage insurance was originally acquired on or after January 1, 2007.

    4. If a homeowner’s  mortgage debt of up to $2 million on their principal residence is forgiven, as in a writedown or foreclosure, it is not treated as “cancellation of debt income.”

    3. If you installed qualified energy-efficient fixtures and systems by December 31, 2010 in your principal residence, you may claim a 30 percent tax credit up to a maximum of $1,500. Fixtures and systems include insulation, energy-efficient exterior doors and windows, heat pumps, furnaces, central air conditioners and water pumps.

    2. A refundable “first time homebuyers’ credit” is available for 10 percent of the purchase price of a new home up to $8,000. The credit is available for homes purchased before October 1, 2010 and the purchaser must have entered into a binding agreement to buy the house before May 1, 2010. Furthermore, you must not have had an “ownership interest” in a principal residence during the last three years before the purchase.

    1. A refundable “repeat homebuyers’ credit” is available for purchasers who entered a contract to buy a home by April 30, 2010 and closed on the sale before October 1, 2010. The credit is 10 percent of the purchase price up to $6,500. To claim the credit, the repeat home buyer must have owned and used the home as a principle residence for five straight years within a time period that may go back a maximum of eight years. You must also be at least 18 years old and the new home purchase price must be under $800,000.

  • Apr 1

    What’s the toughest check you ever had to write? 

    When I consult with entrepreneurs, I, and most other experts, commonly recommend that the owner sign all the checks that go out the door. It’s one good way to keep your hand on the pulse of the company and prevent fraud. 

    As a business grows larger though, it often has other people, such as an accountant or Chief Financial Officer (CFO) take over the responsibility for signing most checks. Such, apparently is the case for Oprah Winfrey and her new cable TV network, the Oprah Winfrey Network, or OWN. In a recent interview, she told Piers Morgan that she only signs checks for amounts over $100,000 these days. But she still has “several hundred” checks to sign for over $100,000. 

    Winfrey told Morgan: “It would knock your socks off. Millions are going out.” 

    When asked if that was painful, Winfrey replied: “The most pain I feel – and my accountants will tell you this – is every time I write a check to the IRS, it’s a ceremony. For years they came in with wine. Now they come in with tequila. It’s a tequila signing ceremony.” 

    Morgan followed up with a question about the most painful check she had ever written to the IRS but Winfrey easily ducked it.