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Getting Married Soon? Tax Considerations for Newlyweds

You think planning a wedding ceremony is complicated? Wait till you see the possible tax issues involved. If you are getting married this year, there is a long list of things you need to be aware of and plan for before tying the knot that can have a significant impact on your taxes. And there are a number of tax-related actions you should take as soon as possible after marriage. 

Considerations Before Marriage  

1. Filing Status — For tax purposes, an individual’s filing status is determined on the last day of the tax year. Thus, regardless of when you get married during the year, you and your new spouse will be treated as married for the entire year and, therefore, can no longer file as single individuals or use the head of household status as you may have done prior to this marriage. Your options are to file using the married joint status, combining your incomes and allowed deductions on one return, or to file two separate returns using the married filing separate status. The latter is not the same as the single status you may have used in the past and can include some negative tax implications. Filing separately in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin) can additionally be complicated. Also, the terms of a prenuptial agreement, if you have one, can affect your filing status choice. 

2. Deductions — The standard deduction for each year is inflation adjusted and for 2025 for a married couple is $30,000 and for a single individual is $15,000. So, if both of you have been filing as single and taking the standard deduction, there is no loss in deductions. However, if in past years one of you had enough deductions to itemize and the other took the standard deduction, after marriage you would either have to take the joint standard deduction or itemize, which might result in a loss of some amount of deductions. There could also be an overall reduction of the standard deduction if one or both of you previously filed as head of household. 

3. New Spouse’s Past Liabilities — If your new spouse owes back federal taxes, past state income tax liabilities or past-due child support or has unemployment income debts to a state, the IRS will apply your future joint refunds to pay those debts. If you are not responsible for your spouse’s debt, you are entitled to request your portion of the refund back from the IRS by filing an injured spouse allocation form. 

4. Combining Incomes — Individuals filing jointly must combine their incomes, and if both spouses are working, combining income can trigger a number of unpleasant surprises, as many tax benefits are eliminated or reduced for higher-income taxpayers. The following are some of the more frequently encountered issues created by higher incomes: 

• Being pushed into a higher tax bracket. 

• Causing capital gains to be taxed at higher rates. 

• Reducing the childcare credit which begins to phase out when your combined incomes (MAGI) reach $400,000. 

• The childcare credit may be reduced if either or both of you have a child and you both work, because a lower percentage of expenses applies as income increases. 

• The possible loss or reduction of the earned income tax credit which applies to lower income individuals. 

• Limiting the deductible IRA amount. 

• Triggering a tax on net investment income that only applies to higher-income taxpayers. 

• Causing Social Security income to be taxed. 

• Reducing or eliminating medical itemized deductions. 

Filing separately generally will not alleviate the aforementioned issues because the tax code includes provisions to prevent married taxpayers from circumventing the loss of tax benefits that apply to higher-income taxpayers by filing separately. 

On the other hand, if only one spouse has income, filing jointly will generally result in a lower tax because of the lower joint tax brackets. In addition, some of the higher-income limitations that might have applied to an unmarried individual with the same amount of income may be reduced or eliminated on a joint return. 

Filing as married but separate will generally result in a higher combined income tax for married taxpayers. The tax laws are written to prevent married taxpayers from filing separately to skirt around a limitation that would apply to them if they filed jointly. For instance, if a couple files separately, the tax code requires both to itemize their deductions if either does so, meaning that if one itemizes, the other cannot take the standard deduction. Another example relates to how a married couple’s Social Security (SS) benefits are taxed: on a joint return, none of the SS income is taxed until half of the SS benefits plus other income exceeds $32,000. On a married-but-separate return, the taxable threshold is reduced to zero. 

Aside from the amount of tax, another consideration that married couples need to be aware of when deciding on their filing status is that when married taxpayers file jointly, they become jointly and individually responsible (often referred to as “jointly and severally liable”) for the tax and interest or penalty due on their returns. This is true even if they later divorce. When using the married-but-separate filing status, each spouse is only responsible for his or her own tax liability. 

5. Healthcare Insurance - If either or both of you are obtaining health insurance through a government Marketplace, your combined incomes and change in family size could reduce the amount of the premium tax credit to which you would otherwise be entitled, requiring payback of some or all of the credit applied in advance to reduce your monthly premiums. More complicated yet, if either or both of you are included on your parent’s’ Marketplace policy, those insurance premiums must be allocated from the parents’ return to your return. 

6. Spousal IRA — Spousal IRAs are available for married taxpayers who file jointly where one spouse has little or no compensation; the deduction is limited to the smaller of 100% of the employed spouse’s compensation or $7,000 (2025) for the spousal IRA. That permits a combined annual IRA contribution limit of up to $14,000 for 2025. For each spouse age 50 or older, the maximum increases by $1,000. However, the deduction for contributions to both spouses’ IRAs may be limited if either spouse is covered by an employer’s retirement plan. 

7. Capital Loss Limitations — When filing as unmarried, each individual can deduct up to $3,000 of capital losses on their tax return for a possible combined total of $6,000, but a married couple is limited to a single $3,000. 

8. Impact On Parents’ Returns — If your parents have been claiming either of you as a dependent, they will generally lose that benefit. In addition, if you are in college and qualify for one of the education credits, those credits are only available on the return where your dependency applies. That generally means your parents will not be able to claim the education credits even if they paid the tuition. 

9. Impact on State Return — Some states require taxpayers to use the same filing status on their state return as they did on the federal return. When deciding which filing status is more beneficial for you, you should also consider how your state return will be affected. 

 Things To Take Care of After Marriage:  

1. Notify the Social Security Administration − Report any name change to the Social Security Administration so that your name and SSN will match when you file your next tax return. Informing the SSA of a name change is quite simple. The Social Security Administration provides an online site to accomplish this task. Your income tax refund may be delayed if it is discovered that your name and SSN don’t match at the time your return is filed. 

2. Notify the IRS - If you have a new address, you should notify the IRS by sending Form 8822, Change of Address. 

3. Notify the U.S. Postal Service - You should also notify the U.S. Postal Service when you move so that any IRS or state tax agency correspondence can be forwarded. 

4. Review Your Withholding and Estimated Tax Payments - If both you and your new spouse work, your combined income may place you in a higher tax bracket, and you may have an unpleasant surprise when preparing your return for the first year of your marriage. On the other hand, if only one of you works, filing jointly with your new spouse can provide a significant tax benefit, enabling the working spouse to reduce their withholding or estimated tax payments. In either case, it may be appropriate to review your withholding (W-4 status) and estimated tax payments, if any, to make sure that you are not going to be under-withheld and that you don’t set yourself up to receive bad news for the next filing season. The IRS provides a W-4 Webpage that provides links to the form and a tax withholding calculator. 

5. Notify the Marketplace — If you or your spouse has purchased health insurance through a government Marketplace, you must notify the Marketplace of your change in marital status. If you were included on a parent’s health insurance policy through a Marketplace, then the parent must notify the Marketplace. Failure to notify the Marketplace can create tax-filing problems. 

If you have any questions about the impact of your new marital status on your taxes, please call our office. 

Cash Flow Is King (Again): How Small Businesses Can Stay Strong in Uncertain Times

Some headlines say a recession’s coming.
Others say the economy’s surprisingly strong.
Meanwhile, you’re over here trying to run a business and wondering if you should be stepping on the gas or tapping the brakes. 

Here’s the truth:
No matter what happens next, cash flow will decide who weathers the storm… and who gets caught off guard. 

Because even in good times, businesses don’t fail because of a lack of profit.
They fail because they run out of cash. 

If you’re a small or mid-sized business owner, now’s the time to tighten up — without panicking. 

Here’s how. 

1. Know Your Numbers (Better Than Ever) 

It sounds obvious.
But a lot of small businesses don’t have a real grip on: 

• How much cash is actually coming in (and when) 

• How much cash is going out (and where it’s going) 

• How long they could operate if sales slowed down tomorrow 

Get serious about cash flow forecasting.
Look 3, 6, even 12 months ahead.
And don’t just build one forecast, build a few: 

• A “best case” scenario 

• A “most likely” scenario 

• A “tighten the belt” scenario 

Because hope isn’t a strategy.
Options are. 

2. Watch Your Expenses Like a Hawk 

When cash is flowing, it’s easy to get loose. 

Monthly subscriptions pile up.
That extra part-time hire feels harmless.
You add a few “nice to haves” to the office or the marketing plan. 

Now is the time to get ruthless — not scared, but smart. 

• Audit every expense 

• Kill anything that doesn’t directly drive revenue or efficiency 

• Renegotiate contracts where you can 

• Delay non-critical upgrades and investments 

Think lean, not cheap.
Cut fat, not muscle. 

3. Speed Up Receivables, Slow Down Payables 

Cash flow isn’t just about how much you earn.
It’s about when you collect and when you pay. 

Speed up your inflows: 

• Invoice immediately (not at the end of the month) 

• Offer small discounts for early payments 

• Enforce payment terms politely but firmly 

Slow down your outflows: 

• Negotiate longer payment terms with vendors 

• Take full advantage of any grace periods without damaging relationships 

• Time payments carefully without risking penalties 

In uncertain times, timing matters as much as totals. 

4. Build (or Rebuild) Your Emergency Fund 

You don’t need a war chest worthy of a Fortune 500 company.
But you do need a buffer. 

Even setting aside one month’s operating expenses can buy you precious time if sales slow or unexpected costs pop up. 

Three months? Even better. 

Cash reserves give you options — the option to keep your team, maintain inventory, market strategically — when others are panicking. 

Start small if you have to.
Consistency wins. 

5. Stay Flexible and Stay in the Game 

Will we get a recession? A boom? A little of both?
No one knows for sure. 

What matters is being ready either way. 

The businesses that survive uncertain times aren’t necessarily the biggest, or even the smartest.
They’re the ones that can bend without breaking. 

• Flex your offers if customer demand shifts 

• Watch your inventory levels carefully 

• Keep marketing, but double down on what works 

• Stay close to your customers and suppliers 

And most of all, keep calm.
Panic is expensive. 

Planning Ahead Means Sleeping Better at Night 

You don’t have to figure this out alone. 

Our team helps small and mid-sized businesses map out cash flow strategies, budget smarter, and build scenario plans that keep them resilient, no matter what the economy throws their way. 

If you want more confidence, more clarity, and a stronger financial cushion for the road ahead, we’re ready to help. 

Contact us today to get started. 

 

 

Summer Employment for Your Child

Summer jobs for kids offer more than just extra cash—they provide valuable life lessons and skills that can benefit young individuals in their personal and professional lives. Whether they are saving up for a special purchase, gaining work experience, putting the money away for the future or simply looking to spend their time productively, summer jobs can be a transformative experience. 

Summer is almost here, and your children may be looking for a summer job. The standard deduction for single individuals increased from $14,600 in 2024 to $15,000 in 2025, meaning your child can now make up to $15,000 from working without paying any income tax on their earnings. 

In addition, they can contribute the lesser of $7,000 or their earned income to an IRA. If they contribute to a traditional IRA, they could earn up to $22,000 tax free, by combining the standard deduction and the maximum allowed deductible contribution to an IRA for 2025 of $7,000. However, looking forward to the future, a Roth IRA with its tax-free accumulation and distributions would be a better choice. But the contributions to a Roth IRA are not deductible. 

Even if your child is reluctant to give up any of their hard-earned money from their summer or regular employment, if you have the financial resources, you could gift them the funds to make the IRA contribution, giving them a great start and hopefully a continuing incentive to save for retirement. 

Examples of traditional summer and even some year-round part time jobs for young adults: 

• Fast Food Services – Flipping burgers and conjuring up lattes and cappuccinos are iconic summer jobs and a quintessential entry-point into the workforce for many young individuals. Working at a fast-food chain can provide teenagers with valuable skills and experiences that serve as a strong foundation for future careers. The worker’s employer will issue a Form W-2 that reports their year’s wages and any income tax and FICA withheld. If the worker received tips, these may have already been included in the reported wages, but if not, then the tips will need to be reported separately on their tax return, so the worker should keep a record of the tips received. 

• Babysitting - teaches responsibility and childcare skills. Kids can start by offering their services to neighbors or family friends, gradually building a reputation as a reliable care provider. It’s essential to know basic first aid and undergo a safety course to gain the trust of parents. The income earned while babysitting may be taxed, but generally sitters don’t receive W-2s from the parents who have hired them to tend to their children. Even so, the income may still be reportable, depending on the sitter’s total income for the year. 

• Lawn Mowing and Gardening - Lawn mowing and gardening are great ways for kids to earn money while enjoying the outdoors. These jobs teach important skills such as time management, work ethic, and basic business management. Kids working for themselves can offer package deals for regular services to maintain a steady stream of income. If the child is hired by a company that provides gardening services, the child’s income should be reported on a Form W–2; otherwise, just as with a babysitter, the income may still be reportable, depending on the child’s total earnings for the year. 

• Lifeguarding - For older teens who are strong swimmers, lifeguarding at a community pool or beach can be an ideal summer job. It requires certification in CPR and first aid, which provides vital life-saving skills. The child should be treated as an employee and receive a W-2 form from the employer. 

• Pet Sitting and Dog Walking - Animal lovers can turn their passion into a summer job by offering pet sitting and dog walking services. This job teaches responsibility and empathy towards animals while allowing kids to enjoy the company of pets. Earnings from these activities may be reportable and taxable, depending on the amount earned, and it is unlikely that the child will be issued a Form W-2. 

• Art and Craft Sales - Those who have a talent for art and crafts can create and sell their product at local markets or online platforms. This job fosters creativity and teaches marketing and entrepreneurship skills. If the artist is doing this activity as a hobby, all of the sales will be reportable if they are required to file a tax return. If the child intends this to be a business, then only the excess of the sales amount over the cost of materials and supplies would be taxable. Of course, in either scenario if the child’s standard deduction is greater than the income from their sales, none of this income will be taxable. 

• Online Tutoring - Kids who excel in academics can offer online tutoring services to younger students. This job reinforces their own knowledge while helping them develop teaching and communication skills. The child should keep track of their earnings from these services, as they may be reportable depending on the child’s total income for the year. 

• Social Media Management - Teens who are adept at social media can offer management services to small businesses looking to expand their online presence. This can involve content creation, scheduling posts, and engaging with followers. If the teen is hired as an employee, the employer will issue a Form W-2 at the end of the year. The teen is “free-lancing” the earnings from this activity should be documented as they may need to be reported on the child’s tax return. 

• App or Game Development - For tech enthusiasts, creating apps or games can be both a learning experience and a profitable venture. Plenty of free resources and platforms are available to help kids get started with coding and development. Whether the child is doing this as a hobby or intending it to be a business and is being compensate for their time or expertise other than as an employee, the child should keep a record of their earnings as it may be taxable. 

These are just a few examples of jobs typically available to young adults and the associated tax implications of earnings from these types of work. 

Self-employed Parents Employing a Child – With vacation time just around the corner and employees heading out for their summer vacations, if you are self-employed, you might consider hiring your children to help out in your business. Financially, it makes more sense to keep the family employed rather than hiring strangers, provided, of course, that the family member is suitable for the job. 

Rather than helping to support your children with your after-tax dollars, you can instead hire them in your business and pay them with tax-deductible dollars. Of course, the employment must be legitimate and the pay commensurate with the hours and the job worked. A reasonable salary paid to a child reduces the self-employment income and tax of the parents (business owners) by shifting income to the child. 

Example: Let’s say you are in the 24% tax bracket and own an unincorporated business. You hire your child (who has no investment income) and pay the child $16,000 for the year. You reduce your income by $16,000, which saves you $3,840 of income tax (24% of $16,000), and your child has a taxable income of $1,000, $16,000 less the $15,000 standard deduction, on which the tax is $100 (10% of $1,000). 

If the business is unincorporated and the wages are paid to a child under age 18, the pay will not be subject to FICA (Social Security and Medicare taxes) since employment for FICA tax purposes doesn’t include services performed by a child under the age of 18 while employed by a parent. Thus, the child will not be required to pay the employee’s share of the FICA taxes, and the business won’t have to pay its half either. 

Example: Using the same information as the previous example, and assuming your business profits are $130,000, by paying your child $16,000, you not only reduce your self-employment income for income tax purposes, but you also reduce your self-employment tax (HI portion) by $429 (2.9% of $16,000 times the SE factor of 92.35%). But if your net profits for the year were less than the maximum SE income ($176,100 for 2025) that is subject to Social Security tax, then the savings would include the 12.4% Social Security portion in addition to the 2.9% HI portion. 

A similar but more liberal exemption applies for FUTA, which exempts from federal unemployment tax the earnings paid to a child under age 21 while employed by his or her parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting solely of his or her parents. However, the exemptions do not apply to businesses that are incorporated or a partnership that includes non-parent partners. Even so, there’s no extra cost to your business if you’re paying a child for work that you would pay someone else to do anyway. 

Retirement Plan Savings. Referring to our original example, if the child had a made a traditional IRA contribution of $7,000 the taxable income and the tax would zero. So, it might be appropriate to make a Roth IRA contribution instead, especially since the child has so many years before retirement and the future tax-free retirement benefits will far outweigh the current $100 savings. Of course, some children will not be thinking about retirement at their young age and may object to contributing to an IRA. If that is the case, perhaps you as the parent, or even the grandparents, can make a gift of the IRA contribution, which can grow to big bucks by the time the child reaches retirement age. 

Benefits of Summer Jobs for Kids 

• Skill Development: Summer jobs help children develop essential skills such as communication, teamwork, and problem-solving. 

• Financial Literacy: Earning money teaches kids about budgeting, saving, and financial responsibility from a young age. 

• Work Ethic: Holding a job instills a strong work ethic and the value of hard work. 

• Independence and Confidence: Working outside the home encourages independence and boosts confidence. 

• Tax Implications Introduced: A summer job may be the first time that a working child or young adult becomes aware of the tax system. 

In conclusion, summer jobs provide a wealth of opportunities for kids to learn, grow, and earn. By exploring different options, they can find a job that suits their interests and skills, paving the way for future success. 

If you have questions related to your child’s employment or hiring your child in your business, please give our office a call. 

How the Social Security Fairness Act and Lump-Sum Election Can Maximize Your Benefits

On January 4, 2025, President Biden signed into law the Social Security Fairness Act, a significant milestone in addressing long-standing issues within the Social Security system. This new legislation eliminates two controversial provisions: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). These provisions have historically reduced the Social Security benefits of certain public servants, including teachers, law enforcement officers, and postal workers, who transitioned to other employment forms later in their careers. 

The Impact of the Social Security Fairness Act 

The primary beneficiaries of this act are those whose Social Security benefits were previously diminished by WEP and GPO. As a result of the new law, these individuals will experience an average monthly increase of roughly $360 in their benefits. Starting in 2024, the adjustments are applicable going forward, ensuring that affected beneficiaries receive enhanced financial security in their retirement. 

Moreover, starting February 24, 2025, the Social Security Administration (SSA) began disbursing retroactive benefits, increasing monthly benefits for those impacted by WEP and GPO. Eligible beneficiaries receive a one-time retroactive payment covering the increased benefit amounts back to January 2024, marking the official cessation of WEP and GPO. 

These payments are systematically processed, and beneficiaries whose monthly benefit amounts are adjusted, or due retroactive payments will receive notification from the SSA. This proactive communication ensures transparency as the changes take effect, aided by a structured update process. 

Social Security Lump-Sum Election 

When recipients of Social Security benefits receive a lump-sum payment, they are faced with a critical decision regarding how these funds are taxed. Beneficiaries have two options: to have the entire lump sum taxable in the year it is received or to use the “lump-sum election” method. 

Taxation Options for Lump-Sum Payments 

1. Taxation in the Year of Receipt

   When a lump sum is reported as income in the year it’s received, the entire amount is subject to the beneficiary’s current marginal tax rate. This option is straightforward but may not be the most tax-efficient if the lump sum pushes the taxpayer into a higher tax bracket, resulting in a significant tax liability. 

1. Lump-Sum Election Method

   The lump-sum election, alternatively known as the “method of election,” allows the lump sum to be taxed as if it had been received in the year or years it was originally due. This approach offers potential tax savings, distributing the tax impact over multiple years. This can be especially beneficial if the beneficiary was in a lower tax bracket in those earlier years. 

How Each Method Works 

• Taxation in Year of Receipt: This method involves summing the total lump sum with other income for that tax year, thus potentially increasing the overall taxable income. It requires beneficiaries to report the entire payment amount on their tax returns, influencing their Adjusted Gross Income (AGI) and possibly affecting eligibility for certain deductions or credits. 

• Lump-Sum Election: Under the lump-sum election, beneficiaries calculate the tax owed as if the lump sum had been received in prior years. This requires recalculating the tax for those preceding years, considering how much was “received” each year, and ascertaining the combined tax impact for the current filing year. This option requires additional paperwork and potentially consulting with a tax professional to ensure accuracy and compliance with IRS regulations. Here’s how it works:

  1.    Refiguring Past Taxes: The taxpayer recalculates the Social Security benefits for the year(s) to which the lump-sum payment applies. This involves applying the prior year(s) tax rules, including income, deductions, and exemptions that were applicable then.

  2.    Using Worksheets: The IRS provides detailed worksheets in Publication 915 to facilitate this calculation. These worksheets guide taxpayers through the process of determining how much of their Social Security payments would have been taxable in each relevant year if they had been received on time.

  3.    Comparative Analysis: Once the refigured tax amounts are calculated, taxpayers compare the total taxes they would have paid using this method against simply adding the entire lump-sum to the current year’s income. They then elect the method which results in lower taxable benefits.

  4.    Reporting: If the lump-sum method proves advantageous, taxpayers must report their decision by checking a box on their tax return (typically Form 1040 or 1040-SR) and providing the relevant figures for total and taxable benefits. 

Selecting the Optimal Taxation Method 

Making an informed decision on which taxation option to choose depends on careful evaluation of individual financial circumstances. Factors include the current tax bracket, changes in income over the years, and potential eligibility for deductions or credits that could mitigate tax liability. 

For many, the lump-sum election may present significant tax savings, particularly for retirees on fixed incomes who may have experienced fluctuations in income. This method can result in a smaller incremental tax consequence, thereby preserving more of the lump sum for essential expenses. 

Professional Assistance for Optimal Decision Making 

Determining the best course of action for taxation on lump-sum Social Security payments can be a complex process, demanding a comprehensive understanding of tax laws and personal financial situations. For taxpayers who have received a lump-sum payment, professional guidance can ensure they choose the option that minimizes their tax burden, optimizes their financial outcomes, and aligns with long-term financial planning goals. 

At our firm, we are knowable in navigating the complexities of Social Security benefits taxation. Our expertise can assist you in examining your unique situation, exploring the tax implications of lump-sum payments, and estimating the most advantageous method. Contact us today to discuss your options and secure peace of mind the lump-sum payment is being taxed to your best benefit. 

Understanding Filing Requirements and Non-Compliance Penalties for Exempt Organizations

Navigating the labyrinth of return filing requirements for tax-exempt entities can seem daunting at first glance. However, understanding these requirements is crucial for maintaining your organization’s tax-exempt status and ensuring compliance with the Internal Revenue Service (IRS). This comprehensive guide will walk you through the various forms that may need to be filed, their specific requirements, due dates, online filing options, and the consequences of late or non-filing. By the end of this article, you’ll have a clearer understanding of the process and how to navigate it efficiently. 

Annual Filing Requirements - Tax-exempt organizations are required to file an annual information return or notice with the IRS unless an exception applies. Among the organizations excepted from filing the annual forms are religious organizations, church-affiliated schools under the college level, and certain political organizations. The primary forms involved are Forms 990, 990-EZ, 990-PF, 990-BL, and the 990-N (e-Postcard). The specific form your organization needs to file depends on its financial activity, assets, and type. 

Understanding Which Form to File 

• Form 990 – Form 990, the “Return of Organization Exempt from Income Tax,” is required for organizations with gross receipts of $200,000 or more, or total assets of $500,000 or more. It’s also necessary for certain other organizations, such as those operating hospital facilities or sponsoring donor-advised funds. 

• Form 990-EZ – This is the “Short Form Return of Organization Exempt from Income Tax,” and is for organizations with annual gross receipts less than $200,000 and total assets at the end of the tax year less than $500,000. 

• Form 990-N (e-Postcard) - Small organizations with annual gross receipts normally $50,000 or less may file Form 990-N, a simple electronic notice. However, certain organizations, despite their small size, are required to file Form 990 or 990-EZ instead. 

• Form 990-PF -Every private foundation, regardless of its revenue or assets, must file Form 990-PF annually. This form is the “Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation.” 

• Form 990-BL - Is for black lung benefit trusts with gross receipts more than $50,000. Those with gross receipts of $50,000 or less may file Form 990-N. 

Due Dates and Extensions - The due date for these forms is the 15th day of the fifth month following the end of an organization’s tax year. For example, if your tax year ends on December 31, your filing deadline is May 15 of the following year. Organizations can request an automatic six-month extension using Form 8868. 

Online Filing Options - The IRS encourages electronic filing for its convenience and efficiency. Forms 990, 990-EZ, and 990-PF must be e-filed. Form 990-N must be filed online using the Form 990-N Electronic Filing System (e-Postcard). The IRS provides resources and links for online filing on its website. 

Consequences of Late Filing or Non-Filing - Failing to file the required form for three consecutive years will result in automatic revocation of your organization’s tax-exempt status. This is a significant penalty that can affect an organization’s operations and donations. 

Monetary Penalties for Filing Non-Compliance -Tax-exempt organizations are subject to monetary penalties for not filing their required annual returns or notices, or for filing them late, under various circumstances. Penalty amounts may be adjusted annually for inflation, and the amounts shown below are for returns required to be filed in 2025. The penalties and conditions under which they apply are as follows: 

• Late Filing of the Return - Organizations with annual gross receipts exceeding $1,274,000 are subject to a penalty of $125 for each day the failure to file continues, with a maximum penalty for any one return of $63,500. This penalty applies from the day after the due date of the return until the return is filed. 

• Failure to File Electronically – Tax-exempt organizations required to file electronically but fail to do so are deemed to have not filed the return, even if a paper return is submitted. This is considered a failure to file. 

• Incomplete or Incorrect Filing - If an organization files an incomplete return, such as by failing to complete a required line item or part of a schedule, or if the return contains incorrect information, penalties can also be imposed. 

• Responsible Person(s) Penalty – If the organization doesn’t file a complete return or doesn’t furnish correct information and fails to comply within a fixed time after the IRS sends a letter, a penalty of $10 a day can be charged to the person responsible, with a maximum penalty of $6,000 for any one return. 

• Disclosure Requirements - Exempt organizations that fail to file required disclosures are subject to a nondisclosure penalty of $125 for each day the failure continues, with a maximum penalty for any one disclosure of $63,500. If the IRS makes a written demand for disclosure and the organization fails to comply by the specified date, the penalty is $125 for each day after the date specified by the IRS until disclosure is made, with a maximum penalty for any one disclosure of $12,500. 

These penalties highlight the importance of tax-exempt organizations filing their required returns and notices on time and accurately to avoid financial penalties and other consequences such as the revocation of tax-exempt status. 

Other Considerations - Beyond the primary forms, tax-exempt organizations may need to file additional forms depending on their activities. For instance: 

• Employee Payroll Forms - Form 941, the Employer’s Quarterly Federal Tax Return, is used by employers to report to the IRS wages paid to employees, federal income tax withheld from employees, both the employer’s and employees’ share of Social Security and Medicare taxes, and additional Medicare Tax withheld from employees.

  Employers must file Form 941 quarterly even if they have no taxes to report, unless they filed a final return, received an IRS notification that they’re eligible to file Form 944 (an annual return), or meet certain exceptions. This form is used to ensure that employment taxes are reported and paid accurately and on time.

  Unrelated Business Income – Tax-exempt organizations with gross income from an unrelated business of $1,000 or more must file Form 990-T, Exempt Organization Business Income Tax Return, and potentially pay unrelated business income tax (UBIT) on that income.

  Unrelated Business Income (UBI) refers to the income generated from any trade or business that is regularly conducted by an exempt organization and is not substantially related to the performance of the organization’s tax-exempt purpose or function, except as a means of producing funds. The concept of UBI is crucial for tax-exempt entities because it determines the extent to which these organizations may engage in business activities without jeopardizing their tax-exempt status or incurring tax liabilities.

  Employee Benefit Plan Reporting – If the exempt organization has an employee benefit plan, a series Form 5500 must be filed. The purpose of this form is to assure that employee benefit plans are operated and managed in accordance with certain prescribed standards. It must be electronically filed and is due by the last day of the seventh month after the plan year ends, or typically July 31 for a calendar-year plan. A filing extension of 2½ months is available by filing Form 5558 prior to the due date deadline. Form 5558 may be paper filed. 

• State Filing Requirements - State additional filing requirements may vary. 

Staying Informed and Compliant - The IRS offers a wealth of resources to help tax-exempt organizations stay compliant. Their Charities and Nonprofits webpage, along with the StayExempt.irs.gov site, provides interactive workshops, mini-courses, and a free e-newsletter to keep you informed of the latest news and requirements. 

Filing requirements for tax-exempt entities are an essential aspect of maintaining your organization’s compliance and tax-exempt status. By understanding which forms apply to your organization, adhering to due dates, and taking advantage of online filing options, you can navigate the filing process more smoothly. Remember, staying informed and proactive in your filing obligations is key to avoiding penalties and ensuring your organization continues to thrive. 

Contact our office with questions and for assistance meeting your exempt organizations filing requirements and avoiding non-compliance issues. 

When Consumers Pull Back: What Small Businesses Need to Know Right Now

It starts small.
Fewer cars on the dealership lot.
Half-empty restaurants on a Friday night.
A “maybe next year” when customers talk about their next big vacation. 

It’s not your imagination.
Consumer behavior is shifting — and small businesses are feeling it. 

When uncertainty rises (tariffs, policy shifts, rising prices), people don’t always rush to react.
They hesitate.
They delay.
They tighten their budgets, even before their wallets force them to. 

And if you’re a small or mid-sized business owner?
You need to be reading these signals — fast — and adapting your plans to match. 

1. Delayed Buying Decisions Are the New Normal 

In a world where prices feel unpredictable and supply chains aren’t a sure thing, customers aren’t eager to “buy now, ask questions later.” 

They’re waiting. 

Waiting for: 

• Prices to stabilize 

• More certainty about their finances 

• More confidence in their purchasing decisions 

What it means for you:
If your business depends on quick sales or impulse buys, it’s time to rethink.
Customers are taking longer to convert — and you’ll need to nurture, educate, and reassure them more than ever before.  

2. Travel and Dining Take a Hit (Even If It’s Temporary) 

Travel bookings and restaurant reservations are some of the first luxuries to go when uncertainty creeps in. 

Consumers are saying: 

• “Let’s wait until next year to take that trip.” 

• “Maybe we’ll cook at home tonight instead.” 

• “Let’s skip the splurge weekend away.” 

If you’re in the hospitality, food, or service industries:
Even small hesitations stack up.
Fewer bookings.
Fewer tips.
More unpredictability. 

You can’t wait for the “good times” to come back.
You have to adjust your offers, your marketing, and even your pricing strategies to stay competitive now. 

3. Price Sensitivity Is Creeping into Every Industry 

Tariffs often mean increased material costs.
Increased material costs often mean higher prices at the register.
And consumers? They notice. 

Even customers who once didn’t blink at a few extra dollars are now: 

• Comparing prices 

• Shopping for deals 

• Putting off non-essential upgrades or purchases 

Translation:
The value you deliver has to be crystal clear.
No more assuming your customers will stick around “just because.” 

You’ll need to tighten up your messaging, double down on loyalty strategies, and maybe even create flexible offers that meet people where they are right now, not where they were two years ago. 

4. What This Means for SMB Planning and Operations 

Tariff shifts and economic uncertainty aren’t just stories on the news.
They ripple straight into Main Street — and your business. 

Here’s what smart small businesses are doing right now: 

• Updating cash flow forecasts for longer sales cycles 

• Building stronger customer communication plans to maintain trust 

• Reevaluating marketing budgets to double down where it matters 

• Diversifying offerings to meet new spending patterns 

• Investing in customer loyalty because keeping a client is cheaper than chasing a new one 

In other words:
They’re planning for today’s reality, not yesterday’s. 

And they’re staying flexible enough to pivot when consumer behavior shifts again. 

Your Customers Are Changing. Are You Ready? 

You don’t have to guess what’s next. 

Our team helps small and mid-sized businesses like yours read the shifts, adjust smartly, and stay resilient — even when the ground is moving under everyone’s feet. 

Contact us today and let’s create a plan that keeps your business moving forward, no matter what comes next. 

The Retirement Tax Surprise: What Boomers Need to Know Before It’s Too Late

You did it! You worked hard, saved consistently, and now you’re either enjoying retirement—or it’s just around the corner.

You’ve been told for years to put money into retirement accounts, defer taxes, and wait for the golden years. But wait… no one told you?

Retirement might be your highest-taxed phase yet.

Seriously.
Between Social Security income, Required Minimum Distributions (RMDs), capital gains, Medicare premium adjustments, and even state taxes… it can feel like a financial ambush.

Let’s break down why this happens—and what you can do now to soften the blow.

1. RMDs: The Tax Bomb That Starts at Age 73

If you’ve saved in a traditional IRA or 401(k), you’ve been enjoying tax deferral for years. But the IRS eventually wants their cut.

That’s where RMDs come in.
Once you hit age 73, you’re forced to take money out of your retirement accounts—and those withdrawals are taxed as ordinary income.

Why it matters:

• Your RMD could bump you into a higher tax bracket.
• It could trigger higher Medicare premiums (thanks, IRMAA).
• It might even impact how much of your Social Security is taxed.

What to do now:
Consider Roth conversions in your 60s to reduce your future RMDs. Yes, you’ll pay tax now, but it could save you significantly down the road.

2. Social Security Isn’t Always Tax-Free

Up to 85% of your Social Security benefits could be taxable depending on your total income—including investment income, part-time work, and yes, those RMDs.

Here’s the trap:
You think you’re getting $3,000/month from Social Security.
But add in just a few thousand from another source, and suddenly, a big chunk of that is taxable.

Solution:
Work with an advisor who can map out income sources before you trigger your benefits. Sometimes, waiting a year or two—or rebalancing your withdrawal strategy—can dramatically reduce taxes.

3. IRMAA: The Medicare Surcharge You Didn’t See Coming

This one stings.
You file your taxes, enjoy a good year, and then boom—two years later, your Medicare premiums go up.

That’s IRMAA (Income-Related Monthly Adjustment Amount).
If your income exceeds certain thresholds, you’ll pay more for Medicare Part B and D—even if the bump was from a one-time event like a Roth conversion or asset sale.

Proactive planning = lower premiums.
A well-timed income strategy can keep you just under IRMAA thresholds. And in some cases, you can file an appeal based on a “life-changing event” like retirement or loss of income.

4. Capital Gains & Selling Assets in Retirement

Selling your long-held investments? Downsizing your home?
These capital gains could push your income higher than expected—and cause a domino effect with taxes, Medicare, and Social Security.

Even if you’re “living off savings,” your tax return may tell a different story.

Pro tip:
There’s a 0% capital gains bracket for certain income ranges. With the right strategy, you can sell appreciated assets without triggering taxes—but timing is everything.

5. State Taxes Still Matter—Even in Retirement

Not all states treat retirees the same.
Some tax Social Security, some don’t. Some offer pension exemptions, others tax everything.

If you’re thinking about relocating in retirement, don’t just compare housing costs. Compare tax policies. And if you’re staying put? Learn how your current state impacts your bottom line.

6. Your Filing Status Can Change Your Tax Life

A tough but important truth: Losing a spouse in retirement often means going from “Married Filing Jointly” to “Single.”

Which means:

• Lower standard deductions
• Tighter income thresholds
• Bigger tax bills on the same income

If you’re newly widowed or preparing for that reality, it’s worth building a multi-year tax strategy now—not later.

7. You Don’t Have to Navigate This Alone

The retirement tax landscape is not DIY-friendly.
Rules change. Thresholds shift. And one wrong move (or missed opportunity) can cost you thousands.

But with the right guide, you can:

• Smooth out income across years
• Reduce your lifetime tax bill
• Maximize your Social Security and Medicare benefits
• And keep more of the money you worked so hard to earn

Let’s Build a Tax-Smart Retirement Plan—Together

You planned for retirement.
Now it’s time to plan for retirement taxes.

We’re here to help you make smart, proactive decisions that reduce surprises, minimize your tax burden, and give you the peace of mind to enjoy the years ahead.

Contact our office today to schedule a retirement tax check-up. You’ve done the saving—now let’s make sure you keep more of it.

How to Import Bank Transactions into QuickBooks Online

If you’re managing the books for a small business in any industry, there’s one thing everyone agrees on: accurate, timely bank data is the backbone of smart financial decisions. Whether you’re prepping for quarterly reports or diving headfirst into tax season, QuickBooks Online makes it easier than ever to keep your records in sync. But getting your bank transactions into the system—without a mess—is key to maintaining clean books.

QuickBooks Online offers two primary methods to import bank transactions: connecting your bank account directly or manually uploading transaction files. Here’s how to get it done the right way in 2025:

1. Connect Your Bank Account Directly

QuickBooks Online can automatically download transactions from many banks.

Steps:

1. Log in to your QuickBooks Online account.
2. Navigate to Transactions > Bank transactions.
   ﷟HYPERLINK “https://quickbooks.intuit.com/learn-support/en-us/help-article/import-transactions/manually-upload-transactions-quickbooks-online/L0rE9OXBz_US_en_US?utm_source=chatgpt.com”
3. Click on Link account.
4. Search for your bank and follow the prompts to connect.
5. Once connected, QuickBooks will download your recent transactions.

Note: The availability of this feature depends on your bank’s compatibility with QuickBooks Online.

2. Manually Upload Transactions

If your bank isn’t supported or you need to import older transactions, you can upload them manually.

Steps:

1. Prepare Your File:
   • Download your transactions from your bank’s website in CSV, QBO, or QFX format.
     ﷟HYPERLINK “https://quickbooks.intuit.com/learn-support/en-us/help-article/import-transactions/manually-upload-transactions-quickbooks-online/L0rE9OXBz_US_en_US?utm_source=chatgpt.com”
   • Ensure the file is formatted correctly:
     • For CSV files, use either a 3-column format (Date, Description, Amount) or a 4-column format (Date, Description, Credit, Debit).
     • Remove any unnecessary characters or formatting issues.

2. Upload the File to QuickBooks:
   • In QuickBooks Online, go to Transactions > Bank transactions.
     ﷟HYPERLINK “https://quickbooks.intuit.com/learn-support/en-us/help-article/import-transactions/manually-upload-transactions-quickbooks-online/L0rE9OXBz_US_en_US?utm_source=chatgpt.com”
   • Select the account you want to upload transactions into.
     ﷟HYPERLINK “https://quickbooks.intuit.com/learn-support/en-us/help-article/import-transactions/manually-upload-transactions-quickbooks-online/L0rE9OXBz_US_en_US?utm_source=chatgpt.com”
   • Click on the Link account dropdown and choose Upload from file.
     ﷟HYPERLINK “https://quickbooks.intuit.com/learn-support/en-us/help-article/import-transactions/manually-upload-transactions-quickbooks-online/L0rE9OXBz_US_en_US?utm_source=chatgpt.com”
   • Follow the prompts to upload and map your file’s columns to QuickBooks fields.
   • Review the transactions and confirm the import.

Important Tips:

• Ensure your file size does not exceed QuickBooks’ limits (typically 350 KB).
• Double-check date formats and remove any day-of-week references (e.g., “Mon”, “Tue”).
• If you encounter errors, refer to QuickBooks’ support resources for troubleshooting.

Keeping your bank transactions up to date in QuickBooks Online is key for accuracy, compliance, and strategic planning. Whether you’re connecting accounts directly or uploading data manually, taking the time to get it right now can save you hours (and headaches) down the line.

If you run into issues or need help tailoring the setup for your business or clients, don’t hesitate to reach out to our office. Clean books start here.

Spring Clean Your Business Finances: 7 Tips to Improve Cash Flow and Cut Costs

Spring isn’t just for closets. It’s for your business finances too.

And just like you wouldn’t leave last year’s mismatched socks sitting in your drawer, you shouldn’t let old subscriptions, bloated expenses, or outdated processes keep piling up in your books.

Because here’s the truth:
Small financial leaks turn into big problems over time.
But the good news? You can plug those leaks with a bit of spring cleaning. And it doesn’t require a full financial overhaul—just a few focused tweaks that can free up cash and sharpen your operations fast.

Let’s walk through it together.

1. Audit Your Subscriptions (Yes, All of Them)

That software you signed up for during COVID? The design tool you thought you’d use? The double-billed Zoom accounts?
They’re all eating into your margins.

Go line-by-line through your credit card statements and flag:

• Duplicate tools
• Trials that never got canceled
• Apps your team hasn’t touched in 3+ months

Then cut them loose. It’s one of the fastest ways to reclaim hidden cash.

2. Renegotiate Vendor Contracts

Prices have gone up, but that doesn’t mean you have to just accept it.
Call your vendors. Ask about loyalty pricing. Bundle services. Request bulk discounts.
You’d be surprised how often you can shave off 5–15% just by asking the right questions.

Pro tip: If you’ve been a reliable client, you have leverage. Use it.

3. Update Your Financial Systems

If you’re still using spreadsheets to manage cash flow or entering receipts manually…
It’s time to upgrade.

Modern cloud-based systems can:

• Track expenses in real time
• Forecast cash flow with clarity
• Sync with your bank and payroll in seconds

Investing in the right tools now saves you hours later—and gives you better insight into where your money is going.

4. Revisit Your Pricing Strategy

When was the last time you raised your rates?
If it’s been over a year, your profit margin might be quietly shrinking behind the scenes.

Run the numbers:

• Are you still profitable after cost increases?
• Are your competitors charging more?
• Could you offer value-based packages instead of hourly rates?

A small adjustment here could unlock a big bump in revenue—with no added workload.

5. Review Your Staffing Costs

Whether you have employees or contractors, spring is a great time to check:

• Are the roles and tasks still aligned with your goals?
• Are you paying for work that no longer needs to be done?
• Could automation or smarter processes reduce time spent?

Sometimes, trimming costs doesn’t mean letting go of people—it means redefining what needs to get done and how.

6. Collect on Outstanding Invoices

Unpaid invoices? That’s your money sitting in someone else’s account.

• Set up clear payment reminders.
• Add late fees.
• Offer early payment discounts.
• And if clients are chronically late, consider a retainer or an upfront model.

Don’t be afraid to chase what you’re owed—it’s part of doing business.

7. Work with a Financial Advisor Who Gets It

Yes, you could do all of this yourself.
But should you?

The fastest way to spot inefficiencies, uncover savings, and set yourself up for stronger cash flow is to have a second set of (expert) eyes on your numbers.

That’s where we come in.

Let’s Tidy Up Those Finances—Together

Spring is the season of renewal—and your business finances deserve a refresh too.

Whether you’re drowning in subscriptions, stuck with outdated systems, or just want someone to walk you through a smart, streamlined plan for the months ahead, we’re here for that.

Contact our office today to schedule your spring financial check-up.
We’ll help you clean house, cut waste, and build a more profitable path forward.

The Retirement Tax Surprise: What Boomers Need to Know Before It’s Too Late

You did it.
You worked hard, saved consistently, and now you’re either enjoying retirement—or it’s just around the corner.

You’ve been told for years to put money into retirement accounts, defer taxes, and wait for the golden years. But wait… no one told you?

Retirement might be your highest-taxed phase yet.

Seriously.
Between Social Security income, Required Minimum Distributions (RMDs), capital gains, Medicare premium adjustments, and even state taxes… it can feel like a financial ambush.

Let’s break down why this happens—and what you can do now to soften the blow.

1. RMDs: The Tax Bomb That Starts at Age 73

If you’ve saved in a traditional IRA or 401(k), you’ve been enjoying tax deferral for years. But the IRS eventually wants their cut.

That’s where RMDs come in.
Once you hit age 73, you’re forced to take money out of your retirement accounts—and those withdrawals are taxed as ordinary income.

Why it matters:

• Your RMD could bump you into a higher tax bracket.
• It could trigger higher Medicare premiums (thanks, IRMAA).
• It might even impact how much of your Social Security is taxed.

What to do now:
Consider Roth conversions in your 60s to reduce your future RMDs. Yes, you’ll pay tax now, but it could save you significantly down the road.

2. Social Security Isn’t Always Tax-Free

Up to 85% of your Social Security benefits could be taxable depending on your total income—including investment income, part-time work, and yes, those RMDs.

Here’s the trap:
You think you’re getting $3,000/month from Social Security.
But add in just a few thousand from another source, and suddenly, a big chunk of that is taxable.

Solution:
Work with an advisor who can map out income sources before you trigger your benefits. Sometimes, waiting a year or two—or rebalancing your withdrawal strategy—can dramatically reduce taxes.

3. IRMAA: The Medicare Surcharge You Didn’t See Coming

This one stings.
You file your taxes, enjoy a good year, and then boom—two years later, your Medicare premiums go up.

That’s IRMAA (Income-Related Monthly Adjustment Amount).
If your income exceeds certain thresholds, you’ll pay more for Medicare Part B and D—even if the bump was from a one-time event like a Roth conversion or asset sale.

Proactive planning = lower premiums.
A well-timed income strategy can keep you just under IRMAA thresholds. And in some cases, you can file an appeal based on a “life-changing event” like retirement or loss of income.

4. Capital Gains & Selling Assets in Retirement

Selling your long-held investments? Downsizing your home?
These capital gains could push your income higher than expected—and cause a domino effect with taxes, Medicare, and Social Security.

Even if you’re “living off savings,” your tax return may tell a different story.

Pro tip:
There’s a 0% capital gains bracket for certain income ranges. With the right strategy, you can sell appreciated assets without triggering taxes—but timing is everything.

5. State Taxes Still Matter—Even in Retirement

Not all states treat retirees the same.
Some tax Social Security, some don’t. Some offer pension exemptions, others tax everything.

If you’re thinking about relocating in retirement, don’t just compare housing costs. Compare tax policies. And if you’re staying put? Learn how your current state impacts your bottom line.

6. Your Filing Status Can Change Your Tax Life

A tough but important truth: Losing a spouse in retirement often means going from “Married Filing Jointly” to “Single.”

Which means:

• Lower standard deductions
• Tighter income thresholds
• Bigger tax bills on the same income

If you’re newly widowed or preparing for that reality, it’s worth building a multi-year tax strategy now—not later.

7. You Don’t Have to Navigate This Alone

The retirement tax landscape is not DIY-friendly.
Rules change. Thresholds shift. And one wrong move (or missed opportunity) can cost you thousands.

But with the right guide, you can:

• Smooth out income across years
• Reduce your lifetime tax bill
• Maximize your Social Security and Medicare benefits
• And keep more of the money you worked so hard to earn

Let’s Build a Tax-Smart Retirement Plan—Together

You planned for retirement.
Now it’s time to plan for retirement taxes.

We’re here to help you make smart, proactive decisions that reduce surprises, minimize your tax burden, and give you the peace of mind to enjoy the years ahead.

Contact our office today to schedule a retirement tax check-up.
You’ve done the saving—now let’s make sure you keep more of it.

How to Choose the Perfect Business Entity for Your Venture

Choosing the right business entity is a critical decision for entrepreneurs and business owners. The type of entity you select can have significant implications for liability, taxation, and the overall management of your business. In this article, we will explore the pros and cons of various business entities, including sole proprietorships, partnerships, limited partnerships, limited liability companies (LLCs), C corporations, and S corporations which are the most common business structures. We will also discuss liability issues, self-employment taxes, owner limitations, taxation, formation, and dissolution for each entity type.

The business structure one chooses influences everything from day-to-day operations to taxes and how much of their personal assets are at risk. One should choose a business structure that provides the right balance of legal protections and benefits.

* Further information about B corporations and B- corporations not included in this material.

Compare general traits of these business structures, but remember that ownership rules, liability, taxes and filing requirements for each business structure can vary by state. The following material is a general overview of these business structures and it is best practice to consult with your legal counsel and this office before making a final decision.

Sole Proprietorship – A business is automatically considered to be a sole proprietorship if it is not registered as any other kind of business. Thus, the sole proprietor’s business assets and liabilities are not separate from personal assets and liabilities. As a result, sole proprietors can be held personally liable for the debts and obligations of the business. A sole proprietor may also find it difficult to raise money since banks are hesitant to lend to sole proprietorships.

NOTE: If the business owner is the sole member of a domestic limited liability company (LLC) and elects to treat the LLC as a corporation, then it is not a sole proprietorship.

• Pros:
  • Simplicity and Cost-Effectiveness: Sole proprietorships are the simplest and least expensive business entities to establish. They require minimal paperwork and are easy to manage.
  • Complete Control: A sole proprietor has full control over all business decisions and operations.
  • Tax Benefits: Income and expenses are reported on the individual’s personal tax return, simplifying the tax process. The sole proprietor may also qualify for certain tax deductions available to small businesses.
• Cons:
  • Unlimited Liability: Sole proprietors are personally liable for all business debts and obligations, which means personal assets are at risk if the business incurs debt or is sued.
  • Limited Growth Potential: Raising capital can be challenging, as a sole proprietorship cannot sell stock or bring in partners.
  • Self-Employment Taxes: Sole proprietors are responsible for paying self-employment taxes, which cover Social Security and Medicare contributions.
• Formation and Dissolution:
  • Formation: Establishing a sole proprietorship is straightforward, often requiring only a business license or permit.
  • Dissolution: Dissolving a sole proprietorship is equally simple, involving the cessation of business activities and settling any outstanding debts.

Partnership – A partnership is the relationship between two or more people in a trade or business together. Each person contributes money, property, labor or skill, and shares in the profits and losses of the business.  Partnerships represent the simplest structure for two or more people to be in business together.  Two of the most common types of partnerships include:

• Limited Partnerships (LP): Which have one general partner with unlimited liability. The other partners have limited liability and generally have limited control over the business.

Partnerships are pass-though entities, meaning the partnership does not pay taxes. Instead, income, losses, credits and other tax issues are passed through to the partners in proportion to their partnership ownership and reported on their individual returns.

• Limited Liability Partnerships (LLP): A limited liability partnership is also a pass-through entity. The only difference is all the partners have limited liability from debts of the partnership, and the actions of other partners.
• Pros:
  • Shared Responsibility: Partnerships allow for shared management and financial responsibility, which can ease the burden on individual partners.
  • Flexibility: Partnerships can be structured to suit the needs of the partners, with varying levels of involvement and profit-sharing.
  • Tax Advantages: Partnerships are pass-through entities, meaning profits and losses are reported on the partners’ personal tax returns, avoiding double taxation.
• Cons:
  • Joint Liability: In a general partnership, each partner is personally liable for the debts and obligations of the business, including those incurred by other partners.
  • Potential for Conflict: Disagreements between partners can arise, potentially leading to business disruption.
  • Self-Employment Taxes: Partners who aren’t limited partners must pay self-employment taxes on their share of the profits.
• Formation and Dissolution:
  • Formation: Partnerships are formed through a partnership agreement, which outlines the terms of the partnership, including profit-sharing and management responsibilities.
  • Dissolution: Dissolving a partnership requires settling debts, distributing assets, and notifying relevant authorities.

Limited Liability Company (LLC) – A Limited Liability Company (LLC) is a business structure allowed by state statute. Each state may use different regulations, and those considering an LLC should check with the state before starting a Limited Liability Company. A business must register with the state and pay LLC fees to become an LLC.

Owners of an LLC are called members. Most states do not restrict ownership, so members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner. Generally, banks and insurance companies cannot be an LLC, and generally there are special rules for foreign LLCs.

• Pros:
• Limited Liability: LLC owners, known as members, are protected from personal liability for business debts and obligations.
• Flexible Taxation: LLCs can choose to be taxed as a sole proprietorship, partnership, or corporation, providing flexibility in tax planning.
• Operational Flexibility: LLCs have fewer formalities and regulations compared to corporations, allowing for flexible management structures.
• Cons:
• Regulations: LLCs are subject to varying state laws, which can complicate operations if the business operates in multiple states.
• Self-Employment Taxes: Members may be subject to self-employment taxes on their share of the profits.
• Cost: Forming and maintaining an LLC can be more expensive than a sole proprietorship or partnership due to state filing fees and annual reports.
• Formation and Dissolution:
• Formation: LLCs are formed by filing articles of organization with the state and creating an operating agreement.
• Dissolution: Dissolving an LLC involves filing dissolution documents with the state and settling any outstanding obligations.

C Corporation – A corporation is a legal entity that’s separate from its owners. Corporations can make a profit, be taxed, and held legally liable.

Corporations provide strong protection to its owners from personal liability, but the cost to form a corporation is higher than other structures.

Unlike sole proprietors, partnerships, and LLCs that are pass-through entities, corporations pay income tax on their profits. In some cases, corporate profits are taxed twice. This happens when the corporation distributes profits to its shareholders in the form of dividends which are taxable to shareholders on their personal tax returns.

Corporations have a separate life from its shareholders. Corporate ownership is in the form corporate stock which can be purchased and sold without disturbing the corporation.

Ownership in the form of stock gives corporations the advantage of being able to raise capital through the sale of stock, and employee stock options can be a benefit in attracting employees.

• Pros:
  • Limited Liability: Shareholders are protected from personal liability for corporate debts and obligations.
  • Unlimited Growth Potential: C corporations can raise capital by issuing stock, making them attractive to investors.
  • Tax Advantages: Corporations can benefit from various tax deductions and credits not available to other entities.
• Cons:
  • Double Taxation: C corporations face double taxation, where profits are taxed at the corporate level and again as dividends to shareholders.
  • Complexity and Cost: Corporations require more formalities, including a board of directors, bylaws, and regular meetings, which can be costly and time-consuming.
  • Regulatory Requirements: Corporations are subject to stringent regulatory requirements and reporting obligations.
• Formation and Dissolution:
  • Formation: C corporations are formed by filing articles of incorporation with the state and creating corporate bylaws.
  • Dissolution: Dissolving a corporation involves a formal process of liquidating assets, settling debts, and filing dissolution documents with the state.

S Corporation – S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

To qualify for S corporation status, the corporation must meet the following requirements:

• Be a domestic corporation
• Have only allowable shareholders
  • May be individuals, certain trusts, and estates and
  • May not be partnerships, corporations or non-resident alien shareholders
• Have no more than 100 shareholders
• Have only one class of stock
• Not be an ineligible corporation (i.e. certain financial institutions, insurance companies, and domestic international sales corporations)

To become an S corporation, the corporation must submit Form 2553, Election by a Small Business Corporation signed by all the shareholders.

• Pros:
  • Limited Liability: Like C corporations, S corporation shareholders are protected from personal liability.
  • Pass-Through Taxation: S corporations avoid double taxation by allowing income, deductions, and credits to pass through to shareholders’ personal tax returns.
  • Tax Savings on Self-Employment: Shareholders can receive a salary and dividends, potentially reducing self-employment taxes.
• Cons:
  • Ownership Restrictions: S corporations are limited to 100 shareholders, and all must be U.S. citizens or residents.
  • Complex Formation and Maintenance: S corporations require adherence to strict IRS requirements and ongoing compliance with corporate formalities.
  • Limited Flexibility in Profit Sharing: Profits and losses must be distributed according to share ownership, limiting flexibility in profit-sharing arrangements.
• Formation and Dissolution:
  • Formation: S corporations are formed by filing articles of incorporation and electing S corporation status with the IRS.
  • Dissolution: Dissolving an S corporation involves liquidating assets, settling debts, and filing dissolution documents with the state and IRS.

Choosing the right business entity is a crucial decision that can impact your business’s success and your personal financial security. Each entity type offers distinct advantages and disadvantages, and the best choice depends on your specific business goals, risk tolerance, and financial situation. It’s essential to consult with legal and financial professionals to ensure you select the entity that aligns with your long-term objectives and provides the most benefits for your business. Consult with our office to go over relevant issues before making a choice.