Tax Planning in New Orleans – Business
What is Tax Planning?
Tax planning is a process of looking at various tax options in order to determine whether, when, and how to conduct business and personal transactions so that taxes are eliminated or reduced. At JW Accounting + Tax LLC we will guide your tax planning strategies to maximize your financial position and help you choose the course of action that will result in the lowest legal tax liability.
There are several ways to structure a business in the New Orleans area. Below we outline some of your options for business tax planning. We can help you decide which business structure will be most advantageous for your tax planning.
LLC Tax Planning
The tax implications of an LLC in the greater New Orleans area differ from those of corporations. LLCs use “pass-through taxation,” which means the LLC does not pay taxes.
Income from the business is instead passed down to the company’s owners, who are called members in LLCs. They claim the profits or losses on their personal tax forms. Single-owner LLCs pay taxes on Form1040 with the Internal Revenue Service. Partnership LLCs, in which there is more than one owner, must file partnership returns using Form 1065.
Both of these are simpler than paying taxes through a corporate structure. Using these returns also avoids double taxation, under which corporations pay taxes on their income and shareholders also pay taxes when the corporation’s profits are distributed to them through dividends.
S-Corporation Tax Planning
Structuring your New Orleans area business as an S-Corporation can impact your tax liability. An S-Corporation is not subject to corporate tax rates. Instead, an S-Corporation passes through profit (or net losses) to shareholders. The business profits are taxed at individual tax rates on each shareholder’s Form 1040. The pass-through nature of the income means that the corporation’s profits are only taxed once – at the shareholder level. S-Corporations therefore avoid the so-called “double taxation” of dividends.
C-Corporation Tax Planning
A C-Corporation structure for your New Orleans area business is another option. C-Corporations are taxed separately from their shareholders. Any salary paid to yourself as a New Orleans small business owner is deductible as a business expense to the C-Corporation.
C-Corporations are the only business that can split profits between retained earnings and dividends. S-Corps and Partnerships must report all profits as a distribution, even if the business has retained some of the cash for next year’s operating expenses. The ability to choose when and how much you are taxed by controlling when and how much money is distributed is a crucial tax advantage for C-Corporations in the greater New Orleans area.
Partnership Tax Planning
You might choose to set up your New Orleans area business as a Partnership. Partnerships are unincorporated businesses. Like corporations, partnerships are separate entities from the shareholders. Unlike corporations, partnerships must have at lease one General Partner who assumes unlimited liability for the business. Partnerships must have at least two shareholders.
Partnerships distribute all profits and losses to their shareholders without regard for any profits retained by the business for cash flow purposes.
Sole Proprietorship Tax Planning
This is the simplest tax structure for a New Orleans area small business. Sole proprietors are unincorporated businesses. They are also called independent contractors, consultants, or freelancers. There are no forms you need to fill out to start this type of business. The only thing you need to do is report your business income and expenses on your Form 1040 Schedule C. This is the easiest form of business to set up, and the easiest to dissolve.
An LLC with only a single shareholder, a so-called single-member LLC, is taxed as a sole proprietor on a Schedule C.
