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Keep accurate records to avoid tax stress

One thing many people give up when they become small business owners is the “luxury” of paying taxes only on April 15. Depending on your location and type of business, you may have to pay one or more commercial and revenue taxes several times a year. If you keep good records, you can eliminate the worry and complications of these filings. The key is to create a recordkeeping system that is consistent, organized and comprehensive.

Today, accounting software makes sense for even the smallest businesses to record and reconcile transactions. Whether you use a manual or computerized system, though, your goal is to be able to document your business activity for tax purposes as well as develop a picture of how your business is doing at any given time: what is owed to you and how much you owe.

All funds passing through the business should be documented in your checkbook and logged into the general ledger, which serves as the master record of your business’s financial transactions.

Even if you are a solo entrepreneur, you should maintain a dedicated bank account for all business transactions, keeping them separate from your personal or household expenses. This account is a master record of the financial history of your business. Deposit and enter all cash and check receipts into this business account and post all expenditures through it. This ensures that all incoming and outgoing funds associated with the business are properly documented. If you do not have a business name, open the bank account in your name as a business account.

A petty cash box can take care of advances for small day-to-day expenses such as parking or postage. However, you want to limit the number of employees who can disperse these funds and require signed receipts for any use of petty cash.

Make sure you maintain a calendar of all deadlines for filing returns and making payments on state, local and federal taxes. The IRS can provide additional pointers to help make your tax preparations less complicated. Forms, publications and other information are available at www.irs.gov.

If you would like to discuss business taxes and recordkeeping, contact SCORE Grand Rapids. SCORE counselors provide free, confidential counseling to help you develop, prepare and improve your business. For information on SCORE Grand Rapids, and the workshop schedule go to our web-site www.scoregr.org.

Get free and confidential counseling with SCORE, 111 Pearl Street NW, Grand Rapids, MI 49503. Call (616) 771-0305 or email score@grandrapids.org.

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ASK SCORE


Do I need a corporation, a partnership or an LLC for my business?

Submitted by Bob Cooper, SCORE Counselor

Prior to starting anew business it is important to select the proper legal structure.
It is possible to start a business by yourself without creating any separate structure; this type of structure is commonly called a “Sole Proprietorship”. Ina Sole Proprietorship all income and expenses are recognized by you on your income tax return, and the business tax ID number would be your social security number. The Sole Proprietorship is the simplest form of business structure, and would work well if the business had little likelihood of incurring liability,or costs, as the result of something going awry. The owner is liable for all debts and obligations of the business, and therefore the owner’s property is subject to claims of business creditors.
A husband and wife filing jointly can be a Sole Proprietorship. A name for the business can be adopted by the sole proprietor and an assumed name certificate is filed with the County Clerk ‘s office.
Every form of business structure other than the Sole Proprietorship is formed by making application to the State of Michigan ,because every other form of business must receive approval from the State before operating. Also, every other form must receive a tax ID number from the Federal Internal Revenue Service in order to file documents with the IRS.
A second form of business structure is a general “Partnership” which is formed by two or more people who will own and operate the business together. The Partnership is controlled by a formal partnership agreement stating a partner’s contribution,control, management and the sharing of losses and profits. The agreement should also attempt to spell out what happens when a conflict arises, such as death of a partner or disagreement between the partners. A Partnership continues by agreement of the partners, unless it is ended by certain acts, such as the death of a partner, as provided by State law. All partners in a general Partnership are liable and responsible for all obligations of the Partnership. A name for the business can be filed as an assumed name with the County Clerk’s office.
A third form of business structure is a Limited Partnership which simply means that one or more of the partners operate the business while others are strictlyinvestors.
Another form is the “Limited Liability Company”, commonly called an “LLC”. The benefit of the LLC is to limit the liability of the owners. When someone has a claim,the claim must be made against the company and not against the owners, as long as the company is operated correctly. The management of the LLC is defined by a management agreement and filed with the State at the time the LLC documents are filed. An LLC files an information return with the IRS. This return tells the IRS the names of the owners and the percentage amount of the income received by the business upon which each owner must pay the taxes.
A “General Corporation” is another type of business structure. The Corporation is the most widely used but the most complex form of structure from the standpoint of paperwork and administration. However the Corporation allows for easy investment by the use of stock or shares in the company. The Corporation has an identity and existence separate from its owners or shareholders. The Corporation gives the most protection to the owners, or stockholders, from claims,which can only be filed against the Corporation. The corporate structure shields the owners and/or stockholders from liability for wrongful actions of the corporation. The Corporation can have a perpetual existence, unlike the other types of business structure. A Corporation is required to file a tax return separate form the tax returns of the stockholders, and is subject to taxation on its income. The Corporation must request permission from the State to do business under a different name.
In the business structures that provide a shield from liability for the owners, the owners must operate the business separately and distinguish it from themselves, as a separate entity.
For free business counseling, contact SCORE at (616) 771-0305 or email score@grandrapids.org. Visit their website at www.scoregr.org

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