Tax Considerations and Related FAQs

What is a dividend?

Hopefully something that you have plenty of! A dividend is the cash (or property) that is transferred from the corporation to its shareholders after all expenses are paid, including the corporation’s taxes. Only C Corporations pay “dividends”; S Corporations make “distributions”, since S Corporations themselves do not generally pay taxes. A dividend is not a deductible expense of the corporation.

By | July 12th, 2015|0 Comments

What’s a K-1?

In very lay terms, a K-1 is the partnership equivalent of an employee’s W-2 or a contractor’s 1099. Because a partnership doesn’t generally pay taxes of its own, it issues a form to each of its partners, telling the partners what each of them needs to put on his/her/its own tax return. LLCs taxed as a partnership (the default for multiple-member LLCs) issue K-1s. For more on forming partnerships, here's an article. Or, if you prefer to be entertained, here's a video.

By | July 19th, 2015|0 Comments

I want to add my boyfriend to my single-member LLC. Is that complicated?

Well, if I was your mother, I’d say yes, that’s very complicated, and please just pay him for services rendered. But, as your lawyer, adding him is not that complicated. However, the result is that you’ve now turned what was essentially a sole proprietorship into a partnership, requiring tax returns, fiduciary duties, and ideally, a written partnership agreement for when you want to show your boyfriend the door.

By | July 19th, 2015|0 Comments

I want to convert my LLC into a corporation. Can I? How? Vice versa?

Depending on what state your company is located in, this could be as simple as filing a single form with that state’s governing agency. In some states, this may be more complicated, but there’s always a way. Keep in mind, by converting the entity, you will likely have to get it a new Tax ID Number, since it’s now a different entity. If there’s a partnership agreement, or certain rights with respect to voting or capital return, be careful about property transferring all of that over. Consult with tax and legal counsel.

By | July 19th, 2015|0 Comments

Are my expenses in setting up the corporation or LLC deductible?

Yes. But depending on what stage the business is at, they may not be immediately deductible as an operating expense, but may need to be treated as a start-up expense. This can get complicated; you should consult a tax advisor.

By | August 10th, 2015|0 Comments

Do I need a separate bank account for my corporation or LLC?

Remember, one point of the entity is to keep your business separate from your personal, thereby protecting the personal assets. So, the answer is going to be yes. As such, that will also involve obtaining a tax identification number.

By | August 10th, 2015|0 Comments