Monthly Archives: March 2012

Mega Millions for All!

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If you haven’t heard- the 42 state lotto, Mega Millions is over half a billion dollars. Since we’re finishing out tax season we thought it would be good to highlight one last tax post. We’ll discuss the taxes on your lotto winnings, as well as gross income generally.

If you are from New Hampshire, Tennessee, Texas, South Dakota, Washington, California, Pennsylvania or Delaware you will win the biggest in tonight’s drawing- winning between 3% and 9% more than if you were from any other state because you won’t have to pay state income taxes. However, all winners must count the winnings as income and are subject to the Federal income tax of 35% (or maybe more depending on your specific situation).

As for the rest of us, what counts as gross income can often be a confusing subject.

If you’re wondering what your gross income was for the year- generally speaking, any income from any source counts as income. That includes receipt of money, property, or services. The Internal Revenue Code specifies what income is and what it is not. If you’re not sure if something is income, the IRS applies a three part test to determine if something is gross income- check out the steps below to see if you qualify.

1) There must be an undeniable net accession to wealth. Are you better off after receiving the money, property, or service? If so, this counts as gross income.
2) The benefit must be clearly realized. This simply means that you did, in fact, benefit.
3) Does the tax payer have complete dominion over the benefit of the money, property, or service? For example, if you were given a car, but the title was in the name of another, or there were restrictions on use- you may not have complete dominion. In most instances, this will be fairly straight forward.

The easiest example is if you are given cash- easily all three are met. Other situations that are a little trickier are if someone else pays your rent, your mortgage, or even you food bill. Even trading services for services counts as income- as if you had just handed each other the same amount of cash!

Unfortunately, if you received something that created an economic benefit for you, it is probably income. However, there are many exceptions, exemptions, and deductions that may also apply. Consult your trusted advisor for more information.

In the meantime, buy a ticket for fun. Big money like this rarely comes around- it’s at a record for a reason. You never know if you may be the lucky lotto jackpot winner!

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Meet the MyCorp Team… Brenda!

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Every Wednesday, we’ll be highlighting a member of our MyCorporation family tree- check in with us every week to meet the team here at MyCorp!

Name: Brenda Gordon

Job title: Program Manager

What I do at work: Eat crunchy snacks and manage renewals.

My favorite place to grab lunch at is: The Habit!

The last movie I went to see was: The Lorax

My biggest phobia would be: Drowning

If the office pool won the $476 million jackpot, I would spend my portion of the money on: Buying a new house and retiring once I had trained my replacement, of course.

What I love about being on the MyCorp team: I love the camaraderie that we have here at MyCorp!

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Free Tax Help from 1(800)Accountant!

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That April 17th tax deadline is just four weeks away! Most small business owners know how important it is to get their taxes finished early, but we want to make sure the small businesses we’ve helped create aren’t simply just sending in the necessary forms and hoping for the best.

We want you to know how to maximize every single deduction, decrease any chance of an IRS audit, and keep as much of your hard earned money as possible. With that in mind, we’ve teamed up with 1800Accountant.com to give everyone reading our blog and using our services a free business tax consultation. There are no obligations to stick with 1800Accountant if you do not want to, and you won’t regret setting up a consultation with their team of licensed CPA and accountants to help make sure you’ve followed a sound tax strategy.

If you’re interested, simply click here or on their logo above to access the webpage where you can sign up for your appointment with 1800Accountant.com. As we said before, it’s completely free, there are no obligations and it is a great way to get some professional advice regarding your small business’s tax obligations. If you’d like, you can also call them at 1-800-822-6868; just be sure to mention MyCorp!

Don’t miss this opportunity for free tax help, and remember to sign up as soon as possible to make sure you get an appointment slot that will fit your schedule.

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Partnership 101

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For the last installment in our series on the tax treatment of entity types we’re going to cover the Partnership. If you’ve been keeping up with our posts, this will seem eerily familiar. Why? Because the LLC is typically treated just like a Partnership!

The four considerations we’ve been covering are:

  1. Pass through of gains
  2. Pass through of losses
  3. Transfer of assets to the entity, and
  4. Transfer of assets from the entity

Today we will cover the Partnership. Before we get into the four considerations, it is important to discuss the legal treatment of a Partnership. A Partnership is simply an agreement between two or more people who share an interest in the same business. From a legal standpoint, courts will rely on any agreement, formal or not. Two people merely splitting costs and sharing profits in a venture is enough. Typically, this isn’t an issue, until it is. Additionally, a Partnership does not provide any liability protection. For more information on limiting liability, see here.

As for the tax considerations;

1. Pass through of gains

The default treatment of a Partnership passes gains through to a shareholder’s personal income statement. With a Partnership, there is no entity- only partners. All profits and losses of the Partnership are passed directly to the partners. This can mean that even when no profits are paid out to the partners, the partners are still personally liable for their share of the taxes on those profits (this is true of the LLC as well). A member of an LLC or a Partnership can contract with the other members as to how the gains are allocated and distributed to the shareholders.

2. Pass through of losses

Again, the default treatment of a Partnership is to pass through any losses to a shareholder’s personal income statement. Losses can be allocated according to the terms of the Partnership.

3. Transfer of assets to the entity

The transfer of assets to a Partnership is not a taxable event, regardless of the amount of control owned by the partner transferring the assets. This could potentially make starting your new company less expensive than with other entity types, especially when there are multiple shareholders. While a Partnership is easy to form, and can easily be given assets, it does not protect the partners from limited liability.

4. Transfer of assets from the entity to partners

When a Partnership decides to transfer assets to a partner, this event is not usually taxable. Either upon distribution or liquidation a partner is responsible for the taxes, if any have even arisen.

Overall, a Partnership is a tax efficient way to get your company started, but lacks the limited liability of other entity choices. In most cases there will not be a tax on transferring assets to and from the company. There is also no double taxation of profits, thus saving the shareholders money. Additionally, if there is a loss, a partner may benefit from a tax reduction.

A Partnership is an easy way to setup a business and has beneficial tax treatment, but does not have the benefit of limited liability. If you’re considering a Partnership, also consider an LLC. They have very similar tax treatment, and only a few formal requirements to set up! Learn more here.

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Meet the MyCorp Team… Dana!

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Every Wednesday, we’ll be highlighting a member of our MyCorporation family tree- check in with us every week to meet the team here at MyCorp!

Name: Dana Case

Job title: Director of Operations

What I do at work: I’m the coordinator of all the chaos.

If I could bring home one animal from the zoo, it would be: A monkey, they’re so cute and very human like!

My celebrity doppelganger is: Not sure.

The TV show I could watch over and over again and never be sick of is: Grey’s Anatomy

If I could change my name, I’d pick: Elizabeth

My favorite thing about being on the MyCorp team is: We are all kind, caring and anyone would doing anything for you.

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Five (more) Lessons from Television: On Entrepreneurship

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Ah television, is there anything you can’t teach us? The Simpsons have already made appearances in our humble blog to offer their wisdom on filing taxes, staying sane in the workplace, and getting the kids out of the house during the summer. But we felt that we should give a little bit of love to our other favorite shows that also feature some hard-earned business advice of their own.

"Life doesn't imitate art, it imitates bad television."

So we took a stroll into TV land to learn a few lessons on entrepeneurship, courtesy of our favorite fictional characters.

George Bluth Sr and the Cornballer (Arrested Development)

Sure it’s banned in several countries, can burn off your fingerprints and incited Bluth Sr. to attack Richard Simmons, but ‘The Cornballer’ is the perfect example of why George Bluth made such a great entrepeneur. Even though he can’t legally sell the thing, and it causes severe burns, he and his family continue to use it. They believe in the product in all of its blister inducing glory, and it holds a central place in the home of his son Michael, well loved and well used. The family has the scars to prove it.

In all of their dysfunction and legal trouble, the Bluth family can teach us a lot about the importance of familial support, and of standing behind a good idea. Then again George Sr was in prison for “creative accounting,” so we’ll end the lessons there for now.

Pierce Hawthorne’s Non-Existent Sandwich Shop (Community)

Community is back in full swing, and in the newest episode, moist towelette tycoon Pierce scopes out an opportunity to invest in one of the members of the study group’s, Shirley’s sandwich shop. Having been let go from running his family’s wet-wipe empire once his father died, Pierce becomes very invested in the possibility of starting up and running his own business.

He wasn’t happy just sitting back with the large amount of severance pay given to him by Hawthorne Wipes – he wanted to start his own empire, just like his dad did. He became very proud of the little restaurant he was helping put together, eventually deciding to take a drunken trip over to his father’s grave, demanding to know “how many sandwich shops HE owned!”

Sadly the school decides to open up a Subway in the spot where the new sandwich shop was going to go, but we have to stand back and admire Pierce’s drive and passion. All small business owners know the feeling of stepping back, looking at their little company, and feeling a twinge of pride. So who can blame Pierce for yelling at his father’s tombstone?

Frank Reynolds and his various investment opportunities (It’s Always Sunny in Philadelphia)

What can be said about Frank Reynolds…

Well, a lot can but we try and run a family friendly blog here so we’ll glaze over some of the more colorful shenanigans he’s gotten himself into. But Frank has shown us that he knows how to enjoy himself, even if that means living in unsanitary conditions and becoming involved with weird people who live under a bridge. He is a self-made millionaire, but he continues to show time and time again that life is for living.

A business can completely take over your life if you let it, but Frank didn’t want that. He left his mansion and life of luxury behind because he wanted to sleep on a shared Futon, surrounded by stray cats, and spend time with his friends.

He wanted to live, and while we don’t recommend living exactly like Frank has, it is important to remember to get away occasionally. Just stay out of the sewer…

Dave Rose’s ‘Steak Me Home Tonight’ Truck (Happy Endings)

Dave Rose knew he was good at making sandwiches, and knew he wanted to open  a restaurant. Though it took him an entire episode to figure out he should combine those two particular passions, he eventually connected to dots and bought a food truck called ‘Steak Me Home Tonight.’

The name is a little stupid, but he showed how important it is to take the plunge. If you’ve been putting off starting a business year after year after year, you may soon find yourself comfortable but unhappy in a world full of corporate zombies.

Dave’s story also reminded us of another important rule in business – always remember to say the name of your business in your commercials.

Peggy Hill’s Bookstore (King of the Hill)

We decided to end with one of our favorite female entrepreneurs, Peggy Hill. She has won substitute teacher of the year, run a BBQ restaurant, and, for a brief period of time, owned a bookstore. But when business wasn’t picking up she was worried she could lose everything. Then Dale Gribble came by, sold a gun in her establishment, and asked Peggy if he could part with a few more of his weapons using her store.

Though Peggy wasn’t thrilled by the idea, she agreed and wound up making a tidy sum of money. But she still knew that she had to put an end to things once she no longer recognized her business. She wanted a book store, but had strayed from her passion and ideals, so she walked away.

And people forget that there is no shame in starting anew if your business did not develop like you wanted it to. Owning a small business should be something that you enjoy – it should be a manifestation of your passion. When it isn’t that, and running it is as enjoyable as being stuck in a cubicle all day, then it may be worth starting anew, even if you are successful.

At the very least, it will free up some time for you to flip through the TV and see what other entrepreneurial lessons can be found within.

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LLC 101

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If you’ve been following our blog for the past couple of Fridays, you know that we’re covering four basic tax tips to consider when forming a new entity. If you missed the first two, read up on the C-Corporation and S-Corporation.

The four considerations we’ve been covering are:

  1. Pass through of gains
  2. Pass through of losses
  3. Transfer of assets to the entity, and
  4. Transfer of assets from the entity

Today we will cover the LLC. Before we get into the four considerations, it is important to make one distinction: the difference between an entity’s legal treatment and its tax treatment. An LLC is a type of limited liability entity (hence, Limited Liability Company) that allows the owners protection from legal liabilities. (This differs from a partnership, which is a contractual relationship between the parties, and from a Corporation, which is a creation of a state’s corporate law.) An LLC can elect its tax treatment and be taxed as if it were a Corporation or as Partnership. The distinction is made clearer below.

1. Pass through of gains

The default treatment of an LLC is to be treated as a Partnership. Any gains had by the entity will automatically be passed through to a shareholder’s personal income statement. That means that the entity doesn’t pay income taxes, only shareholders. This is similar to the treatment of the S-Corp, but with fewer restrictions. A member of an LLC or a Partnership can contract with the other members as to how the gains are allocated and distributed to the shareholders.

2. Pass through of losses

Again, the default treatment of an LLC is to be treated like that of a Partnership. Any losses will pass through to a shareholder’s personal income statement. Losses can be allocated according to the terms of the operating agreement.

3. Transfer of assets to the entity

An LLC differs from both a C-Corp and S-Corp in this respect. A transfer of assets to an LLC is not a taxable event, regardless of the amount of control owned by the shareholder transferring the assets. This could potentially make starting your new company less expensive than with other entity types, especially when there are multiple shareholders.

4. Transfer of assets from the entity to shareholders

When an LLC decides to transfer assets to a shareholder, this event is not usually taxable. Either upon distribution or liquidation a shareholder is responsible for the taxes, if any have even arisen.

Overall, an LLC is a great tax efficient way to get your company started. In most cases there will not be a tax on transferring assets to and from the company. There is also no double taxation of profits, thus saving the shareholders money. Additionally, if there is a loss, a shareholder may benefit from a tax reduction.

Since there are different on going requirements for an LLC than for a Corporation, start here to consider any additional steps you may need to take.

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Meet the MyCorp Team… Liza!

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Every Wednesday, we’ll be highlighting a member of our MyCorporation family tree- check in with us every week to meet the team here at MyCorp!

Name: Liza

Job Title: Customer Service

What a day at work includes: I  answer the phone, do status checks and basically help everyone with things that need to be done.

If a movie were to be made about my life the title would be: Drama

When I daydream I think about: How great it will feel to have children!

My favorite dessert is: Raspberry cheesecake.

If I had a whole day to do anything I wanted I would: Just go lay on the beach all day.

If someone were to look in my refrigerator right now he/she’d find: A whole bunch of healthy food.

My favorite thing about going to work is: How nice and helpful everyone is.

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Does Pinterest Have A Future?

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Pinterest has received quite a bit of positive attention, mainly due to its filling of the niche demographic of younger women, but is it destined for social media greatness, or will it fizzle and be sent to the same grave that MySpace and Google+ have been relegated to?

In the hopes of answering these questions, Social Media Today is hosting a webinar to discuss how Pinterest made such a splash, how it will mesh with other social media juggernauts, and what the future of the new kid on the block will hold. Our very own CEO Deborah Sweeney will appear on the panel to give her expertise regarding the legal concerns of the service. Mrs. Sweeney has also written for Social Media Today on the copyright woes Pinterest may soon face.

The webinar will be held tomorrow, March 13th starting at 12:00pm EST/9:00am PST. You have to register to attend, which you can do here, but the webinar is completely free for anyone interested.

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C-Corporation 101

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No one will argue with this little piggybank – money plus money is more money. In fact, that’s the best part of paying taxes – It means you’ve made money! But did you know the type of entity you select can affect your taxes?

As we mentioned last Friday, we’re doing a series on four tax considerations that may help you pick the best business type for you and help your business become more tax efficient. The considerations are:

1. Pass through of gains
2. Pass through of losses
3. Transfer of assets to the entity, and
4. Transfer of assets from the entity

Last week we covered the S-Corporation. This week, we’ll cover the C-corporation.

What is a C-Corporation?

Usually, when people refer to a corporation, they mean a C-corporation. The C stands for the subchapter of the IRS code which governs the federal taxation of this type of entity. There are many benefits to having a corporate entity, such as the limited liability. For more info on the benefits of having a corporation, check here. As for the tax considerations, consider the following:

1. Pass through of Gains

With a C-corp, any gains or profits made by the company that are then distributed to the shareholders will be taxed twice. This double taxation imposes significant costs upon the transfer of money from the corporation to the shareholders. The average corporate tax rate in the United States is 35%. Further, the shareholder will pay an additional tax of 15% on dividends or distributions paid to them via the corporation. This can amount to a 50% tax rate on profits paid out to shareholders.

2. Pass through of Losses

A corporation is not able to pass losses through to shareholders. This could be a significant drawback when a shareholder wants to be able to write off expected losses. Generally, however, the corporation as an entity is able to carry their losses backwards or forwards and apply the tax benefit of a loss to future or past profits. This means that if a corporation realizes losses in one year and profits another, they are able to reduce the tax burden of the profitable year by carrying the loss over.

3. Transfer of assets to the entity

A major component of starting a new business is transferring assets to the corporation so it is able to conduct its business. Generally, if an asset is more valuable at the time it is transferred than when it was purchased, there would be a taxable event. For example, if property (land, buildings, and machines) were bought for $100, but are worth $200 when they are transferred to the corporation, the gain of $100 could be a taxable event for the original owner of the property.

There are complicated tax rules governing these “sales” of assets to corporations, especially if the person who originally owned the asset is not the only owner of the corporation. However, if the person(s) transferring the property owns 80% or more of the company at the time, then this isn’t an issue. If you think this applies to you, consult a licensed professional before making such transfers.

4. Transfer of assets from the entity to shareholders

As we saw above, when a company transfers gains to shareholders there is double taxation. Likewise, a transfer of assets from the corporation to a shareholder is subject to double taxation. For example, if the corporation is to distribute assets rather than money to a shareholder, the company would pay tax on any gain in value of that asset, and the recipient of the asset would also have a taxable gain on the asset received.

While starting a company may create complicated tax issues, choosing the entity that is right for you doesn’t need to be. Visit our Learning Center to see how easy setting up an entity can be!

Don’t forget, only 38 days left before April 17th!

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