Attorney Sandy Ard, of the Ard Law Firm, PLLC, writes about Estate Planning, Medicaid Planning, Veterans Benefits Planning, Wills, Trusts, Living Trusts, Pet Trusts, Special Needs Planning, Asset Protection, Elder Law, Farm Trusts and Non-citizen Spouse Estate Planning, Probate & Estate Administration, Business Succession, and Family Business Planning in Houston, Texas, and the surrounding areas.
A business is what you make of it, and that’s not just a marketing tactic or a business school platitude. When it comes to structuring your business, your selection of “entity” is key.
Do you own, stand to inherit, or are just plain curious about how to start a business (especially if you have been downsized in this economy)? If yes, then you should read a recent article in Forbes explaining the differences between a “C” and an “S” corporation. It is titled “C or S Corporation Choice is Critical for Small Business.”
Spoiler alert: the main distinctions between the two basic corporate structures are all about the tax code. Yaaaawn. That noted, however, there are other significant differences between the two. Not to muddy the already murky waters, the article explores the terrain between these old standards and the new standard that is the LLC, or Limited Liability Company.
LLCs are, by and large, simpler entities, but that doesn’t mean they are ideal in all situations. For some current reading on the capabilities of the LLC, it’s worth taking a hop over to the Wall Street Journal, which recently published an article titled “An Inspired Financing Choice for Artists and Patrons.
These articles only scratch the surface regarding what you need to know about the veritable alphabet soup of available business structures. Ultimately, you will need to bite the bullet and obtain qualified legal counsel to help you select and structure the appropriate entity for your unique circumstances and objectives.
Reference: Forbes (May 3, 2012) “C or S Corporation Choice is Critical for Small Business”
The Wall Street Journal (May 21, 2012) “An Inspired Financing Choice for Artists and Patrons”
We all have tax questions this time of year. 2012 is the year of many possibilities and changes, some as extreme as the “End of the World” and some as mundane as the decision whether or not to move or get a new car. Mayan calendar issues aside, this year means one more year for you to harness the power of the Roth IRA as a tax savvy means to create and eventually transfer wealth. Nevertheless, Roths are not the silver tax bullet in all cases, as Peter Rielly of Forbes recently pointed out in an article titled Hog Gets Slaughtered - Roth IRA Not Qualified To Hold S Stock.
Rielly writes about how Roths and S Corps really don’t mix well. In many ways it’s unfortunate, but probably also obvious, the powers of an S Corp can’t be combined with the powers of a Roth IRA.
As many small business owners already know, S Corporations can be supremely advantageous, if you’re in the position to use one, because they can avoid corporate income tax.
The Roth, meanwhile, avoids tax on future earnings by paying taxes on contributions upfront, rather than upon eventual distributions. Together that would have made for some serious savings for small business owners who also are thinking ahead and planning for their eventual estate transfers.
So, as already foreshadowed above, when it comes to combining Roths and S Corps you really cannot have your cake and eat it too. Case law is against you. After all, the S Corp election is only valid if all shareholders of the S Corp are valid, and a Roth IRA is apparently invalid.