Q-1:

Subject:  Small Business asking for a little help or direction.

Dear Kerry,

I came across your website while researching corporate tax information and was very impressed with the information and your desire to limit tax liability.

I was hoping you could offer a little help on my businesses.

Last year I purchased 3 small businesses from a single owner. The businesses sell very similar products, but are run as 3 separate corporations. 2 are “C” corps and 1 is a “S” corp. All located in Chicago, IL. Combined total annual sales of $2.8 million for all 3 companies.

I hired a new accounting firm to review my financials, do tax planning and file annual tax returns.

They are strongly recommending I change the 2 “C” corps into “S” corps. To avoid the future possibility of “double taxation” on dividend payments and keep things simple by changing all 3 companies to a true calendar fiscal year.

Historically over the last 10 years these businesses have never paid dividends. So I don’t see the benefit. The previous owner managed expenses across the 3 companies to avoid paying excessive taxes and never paid himself dividends just a nice salary.

After doing some research on line and reading your web site I feel like I have received some very bad advice. I believe I need to find a new accounting firm that has my best interests in mind. Also, with the new administration coming in January I think keeping my income as low as possible on my 1040 will be more important than ever.

I want to aggressively manage the businesses to limit my tax liability and I need a financial firm who thinks the same way.

Can you kindly offer some advice on how to proceed.

I would love for you to handle my financials or provide financial advice.

Any advice, direction or referral you can offer would be greatly appreciated. Do you know of a good professional tax advisor near Chicago?

Thank you in advance for your time and response.

Thanks and Best Regards,

A-1:

You are correct in recognizing the fact that your current accountant is not looking out for your best interests.  Unfortunately, there is no shortage of lazy short-sighted tax pros who try to force everyone into a one size fits all approach, often just using S corps.

As I have been preaching for decades, there are huge tax and liability saving opportunities by using multiple corps with different fiscal years.  The ability to smooth income out and even multiply certain tax breaks, such as Section 179, can save huge amounts of money in taxes. As I have explained countless times, the big fear of double taxation is crazy.  Any creative tax advisor worth his/her salt can find methods to shift income in ways that avoid the same money being taxed twice.

Using nothing but S corps for profitable businesses is completely counter-productive, especially in this environment.  That puts everything onto your 1040.  With the incoming administration in DC hyping the fact that they intend to soak people in the upper income levels, adding more income to your 1040 will just make you a more attractive and inviting target for more of your income to be confiscated and spread around. Unless you agree with that definition of being "Patriotic," the goal for preserving more of your hard earned income should be to take steps to keep your 1040 income down as low as possible and slide under the radar of the Socialists who are now in charge of our lives.

I am still not at a point where I can accept any new clients; so you will need to keep looking for someone who will help you reduce your taxes instead of trying to structure things to make it easier on themselves, as it sounds like your current accountant is doing.  You may want to start with the tax pro who helped the previous owner of the businesses because it sounds like s/he understands how to work with multiple entities in a tax efficient manner.

Unfortunately, we don't have anyone specific to whom we could refer you. I did recently post some names and links for some like-minded tax pros around the country.  

If you haven't already done so, you should check out my tips on how to select the right tax preparer for you.  
You should note that geographic location should not be the main criterion for selecting a tax pro.

I wish I could be of more assistance; and I wish you the best of luck.

Kerry Kerstetter

Q-2:

Dear Kerry,
Thank you very much for your detailed response and advice. We are in agreement on the correct strategy for limiting taxable income for my businesses and on my 1040. I have begun a search for a new tax pro who will have my best interests in mind.
I greatly appreciate your comments.
Would it be possible to add my name to you waiting list of potential customers should you ever be ready for additional clients?
Please let me know.
Thanks again for your response.

A-2:

I will keep you posted if my workload ever allows me to accept any new clients.  I do have several names already on the waiting list; so I will be very selective as to the criteria any new clients must meet.

One of the most important factors will be that they are already up and running with proper accounting on QuickBooks for each of their entities.

Good luck.

 Kerry Kerstetter

Labels: corp

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 2/14/2009 01:04:00 PM Send this post: