Structure is strategy. And if you don’t have a long term plan for your business, you’re missing out. It’s not enough to figure it out as you go. For example, most businesses start out as Schedule Cs which pay the additional self-employment tax rate.
If those businesses anticipate losses in the first couple years AND the owner is actively participating in them, they may be better off remaining a Schedule C and letting the loss offset their other active income or carryforward to another year.
But if they anticipate a good profit, it’s time to think about becoming an S Corp. This eliminates the self-employment tax but the owner must be paid a salary. Before an S Corp, you need to be an LLC which is usually a good idea anyway for a little separation from your business and personal to protect your business assets.
Partnerships in husband/wife situations can be set up strategically so the active owner has a smaller share of the business, deferring more of the tax.
C Corps aren’t often necessary but may be in some situations. Done prematurely, they can be a lot of extra cost and complication.
So… get a consultant. Don’t do it by yourself. I work with many different types of structures and businesses and can help you set up the correct structure, pick an appropriate accounting system or software and make sure your reporting stays on schedule.
You can set up your free initial consultation by calling 361 443-3787.
Written by Laura Fleig
September 2, 2020
