Clients who decide to make a “fresh start” after April 15 and launch their own business venture may seek guidance from their tax professional regarding the form or business structure they should choose. The tax pro’s response should be simple enough to be understandable without confusing the issues, and comprehensive enough to include potential snags or traps for the unwary.

Think of business structures as different vehicles that can get you to the same destination — business success — but with very different rides along the way, said Miklos Ringbauer, a CPA in Southern California. 

An LLC, or limited liability company, offers a favorable blend of flexibility and protection. It separates personal assets from business liabilities, while giving options on how the business owner is taxed. It’s the go-to choice for solopreneurs and business owners who want simplicity without sacrificing protection.

Marlon Lopez MMG1design/mmg1design – stock.adobe.com

S corporations function technically as corporations but with tax advantages flowing through to the personal returns of the owners. The owner can potentially slash their self-employment tax by paying themselves a reasonable salary plus distributions. There are restrictions, however: They are limited to 100 shareholders, all of whom must be U.S. citizens or residents, and there can be only one class of stock. 

C corporations are the corporate giants, existing as completely separate entities with their own tax rates. They can have unlimited shareholders of any nationality and multiple classes of stock. The drawback, of course, is double taxation, due to a tax on profits at the corporate level and again when distributed as dividends. 

Although there are numerous “do-it-yourself” websites and incorporation kits, Ringbauer does not recommend them for someone starting a new business. 

“There’s an incredible amount of information on the internet, but much of it is not suitable or is incomplete for a taxpayer when they decide to make a choice,” he said. “It is extremely valuable to speak with a professional — a trusted CPA tax advisor and a lawyer. I can’t tell you how often I’ve seen DIY-created entities from a novice who used an online platform. The system asked the user to check certain boxes, and the user doesn’t know whether that’s the right checkbox or a wrong addition to their bylaws or to their incorporation documents. … It’s very valuable to engage an attorney to do this upfront, because once you do the incorporation and order your bylaws, you might have to spend an incredible amount of financial resources upfront to fix it if it’s incorrect.”

“Most people are aware of LLCs, S corporations and C corporations,” he said. “One unique thing to know is that, except in a few restricted cases, it does not matter what entities you incorporate; you can elect to be taxed as a different type of structure. For example, you can create an LLC for state purposes, but as a taxpayer, you can choose to be taxed as a C corporation or as an S corporation on the federal level. With the projected tax law changes, it’s going to be very important.”

It’s important to discuss the projected lifecycle of the entity with the client and what the taxpayer intends to do. Do they envision selling it, passing it to their heirs, dissolving it or going public? The answer may determine potential tax strategies and timing. 

While California prohibits accountants from incorporating an entity, in other states a CPA can do so, according to Ringbauer. And in states like California, it’s important for an accountant to provide guidance as to which rules and filing requirements and everything else the new business venture will be subject to.

The requirement that an S corporation not have a foreign member can result in a disqualification in the event of a divorce where both spouses own shares, and one is a noncitizen, he noted. 

“If part of the shares will be given to the noncitizen spouse, in the old days that would automatically disqualify the entity from its S corporation status,” he explained. “But from 2017 on, the IRS made the rule change that the entity has the ability to correct that by having the noncitizen spouse sell their shares within a very short period of time in order for the entity not to lose its S status.”

Accounting and business solutions provider Sage announced a series of new features and enhancements for its latest release of Sage Intacct, many of which center around AI. 

Sage Intacct can now, via the new Copilot Subledger Reconciliation Assistant, automate reconciliation reporting, highlight variances and provide drill-down insights for issue resolution. Users can automatically move work-in-progress balances upon project completion to reduce the risk of misstatements and speed up the financial close. They can also use a new Contract Summary Tab to consolidate key contract data into a single view, giving teams insights into billing, purchasing and project details. The Sage Copilot Close Assistant, which previously was accessible only to early adopters in the U.S. and U.K., has now been made generally available. The solution offers an at-a-glance view of month-end close progress to provide real-time visibility into close status across entities and subledgers. It identifies incomplete tasks, aids navigation and keeps staff aligned throughout the close process.

There are some new industry- and location-specific features as well. The software now includes EMRConnect Dashboards for health care providers, as well as integrated ticketing and financial data solutions for arts and culture organizations. New Zealand and Singapore users will also have goods and services tax support. 

“Every finance leader I speak to feels the pressure to perform at pace,” said Dan Miller, executive vice president of the financials and ERP division at Sage. “With these latest enhancements, we are saving them time, and giving them greater visibility for data driven decisions, driving future growth and creating high-performing teams.”

Fundraising platform

The company also announced the general availability of Sage Intacct Fundraising across North America. Developed in partnership with nonprofit solutions provider DonorPerfect, it offers nonprofits a single platform to manage fundraising, finances and operations. 

Users can access customizable forms and automation that initiate donor communications; automate fundraising workflows, including in-house payment processing or automatic assignments and alerts for staff based on donor activities; customize donor communication and updates; receive online fundraising support; access data-driven insights such as donor groups with specific interests; tailor their outreach with advanced segmentation tools; and generate reports that break down donations by giving level, campaign type or other criteria. 

“Nonprofits have long relied on Sage Intacct for their fund accounting needs,” said Miller. “By partnering with DonorPerfect, we’re giving nonprofit leaders a connected, end-to-end solution with integrated transparency which is especially important as organizations need to diversify revenue sources to help them deepen their impact.”

Two New York Republican lawmakers promised to block their party’s signature tax legislation unless GOP leaders raise a proposed $30,000 limit on the federal income tax deduction for state and local taxes.

Their public declarations on Monday shortly after House Republicans released a draft version of their tax bill underscores the difficulty party leaders will have securing passage as lawmakers from high-tax states demand greater increases in the SALT limit, politically vulnerable Republicans chafe at Medicaid cuts and fiscal conservatives press for more spending reductions.

Representative Mike Lawler, a New York Republican, called the proposed SALT limit “woefully inadequate” and said in a Bloomberg Television interview he is a “hard no” on the legislation unless the cap is increased.

Nick LaLota, another New York Republican, said he was “insulted” by the limit and would be a “hell no” vote against it. 

Three other Republicans — New York’s Andrew Garbarino and Elise Stefanik and Young Kim of California — have previously rejected a $30,000 SALT cap, calling it insufficient and saying they would vote against a bill including such a limit.

The House tax committee’s draft bill to renew President Donald Trump’s 2017 tax cuts also would impose a new income limit on the deduction, phasing it out for individuals earning more than $200,000, or married couples earning more than $400,000.

That’s just a fraction of what SALT advocates in the House want, LaLota said. A group of lawmakers — largely from New York, New Jersey and California — most committed to expanding the tax break want a $62,000 deduction cap for individuals, or twice that for couples, the person said. They also demand those levels be indexed for inflation in future years, and that the higher limits are available for taxpayers starting in 2025.

House Speaker Mike Johnson told reporters Monday shortly before the draft legislation was released that no final SALT limit had been set yet. The House Ways and Means Committee is slated to debate the legislation Tuesday and party leaders could modify it at any point before a House vote.

“There were lots of numbers discussed,” Johnson said, following a meeting with lawmakers concerned about the tax break.

The draft legislation caps the SALT limit at $30,000 for both individuals and married couples, up from the current $10,000 limit imposed in the 2017 law. Prior to that law, there was no limit on the deduction and without new legislation the limit would automatically be removed when the 2017 law expires at the end of the year.

The SALT issue has been one of the most contentious for the House GOP to resolve as party leaders try to ram a multitrillion-dollar tax cut package through the House in May. The larger the cap adjustment is, the less money there will be for other tax cuts on the Republican agenda.

House Republicans are trying to keep revenue losses from their tax cut package down to a self-imposed limit of $4.5 trillion. They are also aiming for $2 trillion in spending cuts.

The ceiling must accommodate a nearly $4 trillion extension of the expiring 2017 Trump tax cuts as well as new cuts to taxes on tips and overtime. Republicans also want new tax breaks for seniors, car buyers and businesses building factories in the U.S.