New Business - Entity SelectionThe first hurdle to overcome in establishing a new business is selecting the type of entity for your business. There are several options, each with strengths and weaknesses. Depending on the size, business activity, and necessary liability protection, your business can elect to be a C-Corp, S-Corp, Partnership, LLC, LLP, Sole Proprietor, etc. Please call me with questions you may have about setting up your new business.- Leon D. Goldsmith, CPA (June 25, 2018)
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Bunching DeductionsIf you are a taxpayer that itemizes your deductions, but only exceed the standard deduction by a small amount, consider trying a technique called 'Bunching'. With this technique, you try to bunch your deductions every other year and take the standard deduction on the off years. This can be done by pushing up/back mortgage payments, property tax payments, and charitable contributions in order to get the most deductions possible in a tax year. The following years deductions would then decrease, but you are entitled to take at least the standard deduction in that year. This technique can maximize your tax deductions and thereby lower your total income tax over several years.- Leon D. Goldsmith, CPA (June 11, 2018)
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Reasonable CompensationMany small businesses incorporate as an S-Corp in order to "pay less tax". The way this technique works is that once incorporated the owners pay themselves a lower salary and take the excess income out as distributions. This reduces the Social Security taxes for the owners. The problem here is that many do not know that they must first pay themselves "reasonable compensation" before taking any distributions. Some do not take a salary at all. Every corporate officer should receive a reasonable wage for their services before distributions are made, and what is considered "reasonable" varies depending on the type of business and level of income. If you are using or considering this technique, I would be happy to assist you in determining the appropriate level of compensation and distributions for your business.- Leon D. Goldsmith, CPA (June 4, 2018)
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Withholding TrapFor married taxpayers filing a joint return: If both taxpayers are working, be careful if you both claim 'Married' on your W-4. The tax tables assume one wage earner per household. So when you claim 'Married' on your W-4, the tax withholding tables allow for the standard marital deduction. The tables also shift from one tax bracket to the next at a higher level when you claim 'Married'. So if married couples both claim 'Married' on their W-4, there is a strong probability that you will be under-withheld, even if you claim zero exemptions. This can be corrected by claiming 'Married, but withhold at the higher Single rate' on your W-4.- Leon D. Goldsmith, CPA (May 28, 2018)
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