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LLC or Corporation
Which Business Structure Is Better?
01/16/2021
Taxation:
A corporation can choose to be taxed in one of two ways:
- As a C Corporation where the company pays taxes on its profits. If the corporation’s shareholders receive dividends, they have to pay personal income tax on them. This double taxation is often considered to be the biggest disadvantage of choosing the C Corporation entity.
- As an S Corporation where the company does not pay corporate income tax. Instead, the profits pass through directly to the corporation’s shareholders, who then pay personal income tax on them. This “pass-through” taxation can often save shareholders money. However, not every corporation can take advantage of pass-through taxation. If a corporation has more than 100 shareholders, foreign shareholders, or more than one class of stock, it cannot choose to pay taxes as an S Corporation.
Unlike Corporations, LLCs do not have a tax classification. Single-members usually pay taxes as though they were sole proprietorships, and multi-member LLCs pay taxes as though they were partnerships. The income and expenses of an LLC report on the members’ personal income tax returns. Each member of an LLC pays taxes on his or her share of the profits.
Liability Protection:
The owners of both an LLC and a Corporation obtain personal liability protection for business debts or lawsuits, which keeps their assets, such as their houses, cars, and personal bank accounts, safe.
Profit Sharing and Management:
A corporation typically has a standard management structure. A Corporation must have:
- shareholders who own stock
- officers who handle the daily operations
- and a board of directors who oversee the “big picture”
The shareholders of a Corporation usually meet annually and receive company profits based on the type and number of shares they own.
A Corporation can add new shareholders and transfer shares from one individual to another relatively quickly.
LLC are not required to use any particular management structure. An LLC can be managed by:
- their owners (known as “members”)
- or by a group of managers hired by the members.
In an LLC, each member owns a percentage of the company. However, the members of an LLC can choose to distribute profits in any way they want as long as all members agree to it.
Conclusion: So, which is better? The answer is simple – it depends.
Although Corporations and LLC have some similarities, they also have substantial differences you need to take into account. The structure you choose for your business will depend on the number of owners you have, your plans for growth, the way you plan to manage your company, and the tax consequences of each option.
Internal Revenue Service (IRS)
January 15, 2021
2021 Tax Filing Season begins Feb. 12; IRS outlines steps to speed refunds during pandemic
WASHINGTON ― The Internal Revenue Service announced that the nation's tax season will start on Friday, Feb. 12, 2021, when the tax agency will begin accepting and processing 2020 tax year returns.
The Feb. 12 start date for individual tax return filers allows the IRS time to do additional programming and testing of IRS systems following the Dec. 27 tax law changes that provided a second round of Economic Impact Payments and other benefits.
This programming work is critical to ensuring IRS systems run smoothly. If filing season were opened without the correct programming in place, then there could be a delay in issuing refunds to taxpayers. These changes ensure that eligible people will receive any remaining stimulus money as a Recovery Rebate Credit when they file their 2020 tax return.
To speed refunds during the pandemic, the IRS urges taxpayers to file electronically with direct deposit as soon as they have the information they need. People can begin filing their tax returns immediately with tax software companies, including IRS Free File partners. These groups are starting to accept tax returns now, and the returns will be transmitted to the IRS starting Feb. 12.
“Planning for the nation’s filing season process is a massive undertaking, and IRS teams have been working non-stop to prepare for this as well as delivering Economic Impact Payments in record time,” said IRS Commissioner Chuck Rettig. “Given the pandemic, this is one of the nation’s most important filing seasons ever. This start date will ensure that people get their needed tax refunds quickly while also making sure they receive any remaining stimulus payments they are eligible for as quickly as possible.”
Last year’s average tax refund was more than $2,500. More than 150 million tax returns are expected to be filed this year, with the vast majority before the Thursday, April 15 deadline.
Under the PATH Act, the IRS cannot issue a refund involving the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before mid-February. The law provides this additional time to help the IRS stop fraudulent refunds and claims from being issued, including to identity thieves.
The IRS anticipates a first week of March refund for many EITC and ACTC taxpayers if they file electronically with direct deposit and there are no issues with their tax returns. This would be the same experience for taxpayers if the filing season opened in late January. Taxpayers will need to check Where’s My Refund for their personalized refund date.
Overall, the IRS anticipates nine out of 10 taxpayers will receive their refund within 21 days of when they file electronically with direct deposit if there are no issues with their tax return. The IRS urges taxpayers and tax professionals to file electronically. To avoid delays in processing, people should avoid filing paper returns wherever possible.
Tips for taxpayers to make filing easier
To speed refunds and help with their tax filing, the IRS urges people to follow these simple steps:
File electronically and use direct deposit for the quickest refunds.
Check IRS.gov for the latest tax information, including the latest on Economic Impact Payments. There is no need to call.
For those who may be eligible for stimulus payments, they should carefully review the guidelines for the Recovery Rebate Credit. Most people received Economic Impact Payments automatically, and anyone who received the maximum amount does not need to include any information about their payments when they file. However, those who didn’t receive a payment or only received a partial payment may be eligible to claim the Recovery Rebate Credit when they file their 2020 tax return. Tax preparation software, including IRS Free File, will help taxpayers figure the amount.
Remember, advance stimulus payments received separately are not taxable, and they do not reduce the taxpayer’s refund when they file in 2021.
Key filing season dates
There are several important dates taxpayers should keep in mind for this year’s filing season:
Jan. 15. IRS Free File opens. Taxpayers can begin filing returns through Free File partners; tax returns will be transmitted to the IRS starting Feb. 12. Tax software companies also are accepting tax filings in advance.
Jan. 29. Earned Income Tax Credit Awareness Day to raise awareness of valuable tax credits available to many people – including the option to use prior-year income to qualify.
Feb. 12. IRS begins 2021 tax season. Individual tax returns begin being accepted and processing begins.
Feb. 22. Projected date for the IRS.gov Where’s My Refund tool being updated for those claiming EITC and ACTC, also referred to as PATH Act returns.
First week of March. Tax refunds begin reaching those claiming EITC and ACTC (PATH Act returns) for those who file electronically with direct deposit and there are no issues with their tax returns.
April 15. Deadline for filing 2020 tax returns.
Oct. 15. Deadline to file for those requesting an extension on their 2020 tax returns
The filing season open follows IRS work to update its programming and test its systems to factor in the second Economic Impact Payments and other tax law changes. These changes are complex and take time to help ensure proper processing of tax returns and refunds as well as coordination with tax software industry, resulting in the February 12 start date.
The IRS must ensure systems are prepared to properly process and check tax returns to verify the proper amount of EIP’s are credited on taxpayer accounts – and provide remaining funds to eligible taxpayers.
Although tax seasons frequently begin in late January, there have been five instances since 2007 when filing seasons did not start for some taxpayers until February due to tax law changes made just before the start of tax time.
Internal Revenue Service (IRS)
January 14, 2021
Coronavirus Tax Relief update:
The Treasury Department and the IRS are issuing millions of second Economic Impact Payments by prepaid debit card to speed delivery of the payments to as many people as possible.
If the Get My Payment tool on IRS.gov shows a date that a recipient’s payment was mailed, they should watch their mail for either a paper check or debit card. The debit cards arrive in a white envelope that prominently displays the U.S. Department of the Treasury seal.
These cards provide certain protections against fraud, loss and other errors. They can be used to make purchases online or in stores anywhere Visa Debit Cards are accepted.
Cardholders can also use the cards to do any of the following without paying a fee:
Transfer fund to a personal bank account
Make signature or Pin-debit purchases
Cards are accepted in stores, online or over the phone
Get cash back with a Pin-debit purchase where available
Get cash from in-network ATMs
Get a replacement EIP card, if needed
Check their balance online, through a mobile app or by phone
Florida Department of Economic Opportunity (DEO)
January 11, 2021
Florida Unemployment update:
IRS Form 1099-G will be available by January 31st.
The form provides important tax information.
If you have not received your 1099-G form, please be advised that forms are being processed in batches by the Department.
All new claimants should visit www.FloridaJobs.org to file a claim for Reemployment Assistance.
For existing claimants, the CONNECT is available between 8:00 am and 6:00 pm.
As a reminder, to comply with federal law, claimants are required to return to the CONNECT system every two weeks to request their benefits. In doing so, claimants will confirm that they are still unemployed and acknowledge that you are able and available for work.
You must request your benefits in order to receive payment. Claimants will be able to request a benefit payment for each week available.
While requesting your benefits, please ensure your contact information, including email and mailing address, is accurate, as this is how the Reemployment Assistance team provides critical information.
Additionally, the quickest and most efficient way to receive your benefit payments is by direct deposit into your bank account. The Reemployment Assistance team encourages you to carefully enter your banking information. Mailed payments take an average of 2-4 days longer to reach you.
Governor DeSantis has directed DEO to waive the work search and work registration requirements for claimants through February 27, 2021. Answers to work search questions are still required to process your claim in the CONNECT system but will not impact benefit payments.
If you have questions, please call 1-833 FL APPLY (1-833-352-7759).
Internal Revenue Service (IRS)
January 5, 2021
Coronavirus Tax Relief update:
The IRS have started delivering a second round of Economic Impact Payments as part of the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 to millions of Americans who received the first round of payments earlier this year.
No action is required by eligible individuals to receive this second payment. The IRS reminds taxpayers that the payments are automatic, and they should not contact their financial institutions or the IRS with payment timing questions.
As with the first round of payments, most recipients will receive these payments by direct deposit.
For Social Security and other beneficiaries who received the first round of payments via Direct Express, they will receive this second payment the same way.
Internal Revenue Service (IRS)
January 1, 2021
2021 Tax Season Updates:
Economic impact payments are not taxable for federal income tax purposes, but they reduce your recovery rebate credit.
Recovery rebate credit is figured like last year's economic impact payment, except eligibility and the amount of the credit are based on your tax year 2020 information.
Election to use your 2019 earned income to figure your 2020 earned income credit and additional child tax credit.
Educator expenses include amounts paid or incurred after March 12, 2020, for personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of coronavirus.
Standard deduction amount increased.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act permits certain individuals who file Schedule SE or Schedule H to defer the payment of 50% of the social security tax imposed for the period beginning on March 27, 2020, and ending December 31, 2020.
The Families First Coronavirus Relief Act (FFCRA) helps self-employed individuals affected by coronavirus by providing paid sick leave and paid family leave credits equivalent to those that employers are required to provide their employees for qualified sick leave wages and qualified family leave wages paid during the period beginning April 1, 2020, and ending December 31, 2020.
The IRS has started to accept electronically filed Forms 1040-X.
Tax Preparation Checklist for 2021 Tax Season
February 1, 2021
Taxes
Make preparing taxes easier this year with our handy tax preparation checklist for 2020. We’ll go through everything you need to know to get your tax documents in order. Tax time can be stressful, but we’re here to help every step of the way!
Do I need to file taxes?
First thing’s first: do you even need to file income taxes? Don’t waste time gathering your tax documents if you don’t need to file. Here’s how you know if it’s worth taking the time to prepare taxes this year.
If you’re under 65 and...
Single, file if you made at least $12,200 in 2020 (before taxes).
Married filing separately, you have to file if you made at least $5 in 2020.
Married filing jointly, file if you’re both under 65 and made at least $24,400.
Head of household, file if you made at least $18,350 in 2020.
If you’re over 65 and...
Single, file if you made at least $13,850 in 2020 (before taxes).
Married filing jointly, file if you’re both over 65 and made at least $27,000.
Married filing jointly, file if one of you is over 65 and made at least $25,700.
Head of Household, file if you made at least $20,000 in 2020.
These are just the most common filing statuses. If your spouse has passed, if someone can claim you as a dependent, or if you had wages from a church, there are different requirements. Let us know if you’d like help determining your filing status.
What Do I Need To File My Taxes?
The tax documents you need to gather will be different, depending on your circumstances.
Are you a W-2 employee or a 1099 freelancer?
Did you have more than one job?
Did you collect unemployment?
We’ll break down each of those situations with a simple tax checklist.
Preparing taxes will look a little different this year because of the coronavirus pandemic, not to mention the wildfires and hurricanes.
The Economic Impact Payments released earlier in 2020 need to be included in your tax prep checklist.
If you’re preparing your tax documents and need more details on disaster relief or the CARES Act, get in touch with us. Our team of experts has the latest information on the IRS response to this year’s unprecedented challenges.
Tax Checklist for W-2 Employees
If the business or company you work for takes taxes out of your paycheck automatically, you’re probably a W-2 employee. At the end of the year, your employer has to give you a W-2 statement. By law, they must provide it to you by February 1, 2021.
Here are the tax documents to gather:
Form 1040: The standard IRS tax form most people use for preparing taxes. The 1040EZ and 1040A forms are a thing of the past.
W-2 statements: You’ll need one from each of your employers if you have more than one job. You’ll add amounts from each W-2 together when you fill out your 1040 form.
Tip record: If you get tips, you should be keeping a daily record of the amounts. If you report your tips to your employer, this info would be on your W-2, and you don’t need a separate record.
Economic Impact Payment notice: If you received a payment, you should have gotten a notice from the IRS in the mail.
Investments: If you have an IRA or a pension, expect to get a 1099-R Form from your investment broker. Dividends from stock investments also need to be reported.
Deductions: If you’re claiming any deductions this year, make sure you have the documents to back it up. For example, if you donated to a charity, keep the tax receipt.
These are the basic documents you’ll need to complete your taxes this year. Certain deductions require you to fill out tax schedule documents in addition to what’s listed here. If you’re unsure about documents not listed here, please contact us by phone, email, or in person.
Tax Checklist for 1099 Employees
Freelancers, contractors, and those who are self-employed won’t get a W-2 form to file. In this case, it’s essential to deduct taxes from your income directly. Most 1099 employees report taxes quarterly, but if you didn’t, here’s what to round up if you’re preparing taxes as a 1099 employee.
Tax document checklist for self-employed:
Form 1040: This is the basic form used by nearly everyone reporting an income, whether they’re self-employed or not. Some variations of this form exist, like the 1040-SR for seniors.
Schedule C: This is the reporting form you submit in addition to your Form 1040 as a sole-proprietor. That includes anyone who works for themselves or as an independent contractor.
Economic Impact Payment notice: If you received a payment from the IRS as part of the CARES Act, you’d need to claim it as income on your taxes. The IRS sent out paper notices, even if your payment was direct-deposited.
Deductions: As a self-employed individual, there are all kinds of business deductions you can claim. Gas, professional development, home offices, meals, and advertising can all be deducted. Just make sure to document them!
Investments: Dividends from your financial investments are usually taxable. Check with your investment broker about getting the proper reporting forms, like a 1099-R. If you had to take unplanned disbursements, those are taxable too.
Self-employment has its rewards, but it does tend to make preparing taxes a bit more complicated. The good news is that you can deduct the supplies and expenses you pay during the year.
What If I Was Unemployed In 2020?
If you were unemployed in 2020, you’re not alone. In November 2020, there were over 10 million Americans collecting unemployment benefits. That’s down more than half from the 23.08 million in April.
Income tax preparation checklist for unemployment:
Form 1040: Even if you didn’t have a job in 2020, you still need to file your taxes. Unemployment payments are considered “taxable income” by the IRS.
W-2 statements: If you were employed in the early part of 2020 but had to stop working, don’t forget to count your income from that job.
Form 1099-G: if you received unemployment this year, you should obtain a form 1099-G from your local unemployment office.
Economic Impact Payment notice: If you couldn’t work this year, the IRS economic impact payments probably helped a little. Check your payment status with the IRS if you don’t remember getting yours.
Deductions: You may be able to deduct job search expenses like travel, resume preparation, and postage. Collect your receipts to claim deductions for these expenses. It’s a good idea to digitize them too.
Investments: Just because you missed out on income this year doesn’t mean your investments aren’t earning dividends. Check with your broker to get the right forms to report them.
That’s our checklist for tax preparation under the most common circumstances. Keep it handy when you’re preparing your taxes so you can have everything ready in one place. Consulting a tax professional can take the anxiety out of tax time.
Do you have any questions about customizing your tax preparation checklist? Need help deciding which deductions to take? EFR Accounting Services is here to help with filing personal taxes, bookkeeping, payroll, business taxes, and incorporations. Visit our location or call us at (787) 420-8868.