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Should You Convert Your Business from a C to an S Corporation

Choosing the right business entity has many implications, including the amount of your tax bill. The most common business structures are sole proprietorships, partnerships, limited liability companies, C corporations and S corporations.

In some cases, a business may decide to switch from one entity type to another. Although S corporations can provide substantial tax benefits over C corporations in some circumstances, there are potentially costly tax issues that you should assess before making the decision to convert from a C corporation to an S corporation.

Here are four considerations:

1. LIFO inventories. C corporations that use last-in, first-out (LIFO) inventories must pay tax on the benefits they derived by using LIFO if they convert to S corporations. The tax can be spread over four years. This cost must be weighed against the potential tax gains from converting to S status.

2. Built-in gains tax. Although S corporations […]

By Linkenheimer LLP|2024-05-28T19:37:42+00:00May 28th, 2024|business, s corp|0 Comments

Tax Tips When Buying the Assets of a Business

After experiencing a downturn in 2023, merger and acquisition activity in several sectors is rebounding in 2024. If you’re buying a business, you want the best results possible after taxes. You can potentially structure the purchase in two ways:

Buy the assets of the business, or
Buy the seller’s entity ownership interest if the target business is operated as a corporation, partnership or LLC.

In this article, we’re going to focus on buying assets.

Asset purchase tax basics

You must allocate the total purchase price to the specific assets acquired. The amount allocated to each asset becomes the initial tax basis of that asset.

For depreciable and amortizable assets (such as furniture, fixtures, equipment, buildings, software and intangibles such as customer lists and goodwill), the initial tax basis determines the post-acquisition depreciation and amortization deductions.

When you eventually sell a purchased asset, you’ll have a taxable gain if the sale price exceeds the asset’s tax basis (initial purchase price allocation, plus any post-acquisition improvements, minus any post-acquisition depreciation or amortization).

Asset purchase results with a pass-through entity

Let’s say you operate the newly acquired business as a sole proprietorship, a single-member LLC treated as a sole proprietorship for tax […]

By Linkenheimer LLP|2024-05-20T16:50:11+00:00May 20th, 2024|business, pte|0 Comments

Pay Attention to the Tax Rules if You Turn a Hobby into a Business

Many people dream of turning a hobby into a regular business. Perhaps you enjoy boating and would like to open a charter fishing business. Or maybe you’d like to turn your sewing or photography skills into an income-producing business.

You probably won’t have any tax headaches if your new business is profitable over a certain period of time. But what if the new enterprise consistently generates losses (your deductions exceed income) and you claim them on your tax return? You can generally deduct losses for expenses incurred in a bona fide business. However, the IRS may step in and say the venture is a hobby — an activity not engaged in for profit — rather than a business. Then you’ll be unable to deduct losses.

By contrast, if the new enterprise isn’t affected by the hobby loss rules, all otherwise allowable expenses are deductible, generally on Schedule C, even if they exceed income from the enterprise.

Important: Before 2018, deductible hobby expenses could be claimed as miscellaneous itemized deductions subject to a 2%-of-AGI “floor.” However, because miscellaneous deductions aren’t allowed from 2018 through 2025, deductible hobby expenses are effectively wiped out from 2018 through 2025.

How to […]

By Linkenheimer LLP|2024-05-09T17:22:48+00:00May 9th, 2024|agi, business|0 Comments

Business Owners, Your Financial Statements Are Trying To Tell You Something

Business owners are commonly and rightfully urged to regularly generate financial statements in compliance with Generally Accepted Accounting Principles (GAAP). One reason why is external users of financial statements, such as lenders and investors, place greater trust in financial reporting done under the rigorous standards of GAAP.

But that’s not the only reason. GAAP-compliant financial statements can reveal details of your company’s financial performance that you and your leadership team may otherwise not notice until a major problem has developed.

Earnings are only the beginning

Let’s begin with the income statement (also known as the profit and loss statement). It provides an overview of revenue, expenses and earnings over a given period.

Many business owners focus only on earnings in the income statement, which is understandable. You presumably went into business to make money. However, though revenue and profit trends are certainly important, they aren’t the only metrics that matter.

By Linkenheimer LLP|2024-03-27T18:19:50+00:00March 27th, 2024|business, Financial Reporting Framework|0 Comments

Digital Twins and Terminal Servers: A Use Case for Enhanced Remote Work Solutions

Use Case: Optimizing Remote Work Infrastructure

In today’s changing work environment, the ability to set up efficient and secure remote work solutions is paramount. Digital twins can play a crucial role in optimizing the infrastructure required for remote work, particularly in the configuration and management of terminal servers. Terminal servers allow multiple users to access a centralized computing environment remotely, offering a cost-effective and scalable solution for businesses transitioning to or enhancing their remote work capabilities.

Scenario:

Imagine a business that relies heavily on terminal servers to provide its workforce with remote access to applications and data stored on the company’s internal network. As the demand for remote work increases, the company faces challenges in scaling its infrastructure, ensuring secure access, and maintaining high performance for an expanding remote workforce.

Application of Digital Twins:

Performance Optimization: By creating a digital twin of the terminal server setup, IT administrators can simulate and analyze the performance under various scenarios, including increased user load and varying network conditions. This allows for precise capacity planning and hardware optimization, ensuring that the infrastructure can handle peak loads without compromising performance.
Security Enhancement: Security is a critical concern for remote work solutions. […]

By Linkenheimer LLP|2024-03-19T15:49:55+00:00March 19th, 2024|business, Tech|0 Comments