entity - Linkenheimer LLP CPAs & Advisors

Choosing a Business Entity: Which Way To Go?

If you’re planning to start a business or thinking about changing your business entity, you need to determine what will work best for you. Should you operate as a C corporation or a pass-through entity such as a sole-proprietorship, partnership, limited liability company (LLC) or S corporation? There are many issues to consider.

Currently, the corporate federal income tax is imposed at a flat 21% rate, while individual federal income tax rates currently begin at 10% and go up to 37%. The difference in rates can be alleviated by the qualified business income (QBI) deduction that’s available to eligible pass-through entity owners that are individuals, and some estates and trusts.

Individual rate caveats: The QBI deduction is scheduled to end in 2026, unless Congress acts to extend it, while the 21% corporate rate is not scheduled to expire. Also, noncorporate taxpayers with modified adjusted gross incomes above certain levels are subject to an additional 3.8% tax on net investment income.

Organizing a business as a C corporation instead of a pass-through entity may reduce the current federal income tax on the business’s income. The corporation can still pay reasonable compensation to the shareholders and pay interest on loans […]

By Linkenheimer LLP|2023-11-06T18:05:35+00:00November 6th, 2023|business, entity|0 Comments

Why An LLC Might Be The Best Choice Of Entity For Your Business

The business entity you choose can affect your taxes, your personal liability and other issues. A limited liability company (LLC) is somewhat of a hybrid entity in that it can be structured to resemble a corporation for owner liability purposes and a partnership for federal tax purposes. This duality may provide you with the best of both worlds.

Like the shareholders of a corporation, the owners of an LLC (called “members” rather than shareholders or partners) generally aren’t liable for business debts except to the extent of their investment. Thus, they can operate the business with the security of knowing that their personal assets are protected from the entity’s creditors. This protection is far greater than that afforded by partnerships. In a partnership, the general partners are personally liable for the debts of the business. Even limited partners, if they actively participate in managing the business, can have personal liability.

Check-the-box rules

LLC owners can elect under the check-the-box rules to have the […]

By Linkenheimer LLP|2022-08-24T17:00:46+00:00August 24th, 2022|business, entity, llc|0 Comments

Important: More Passthrough Entity Tax Problems

Due to an issue with some software providers, many passthrough entity tax payments made with 2022 vouchers have been improperly applied to the 2021 tax year. This is resulting in refunds of June passthrough entity elective tax prepayments made to preserve the right to make the 2022 passthrough entity tax election. The FTB is aware of this issue, and they are working quickly to address the problem.

This is only an issue for payments made with Form 3893 (PTE), Pass-Through Entity Elective Tax Payment Vouchers, that were generated through tax software programs. Payments made using WebPay or with manually prepared vouchers have been properly applied.

The FTB has confirmed that the incorrect application of these payments will not jeopardize taxpayers’ ability to elect to pay the tax for 2022. However, because these payments have been refunded taxpayers must take action to correct this issue by returning the erroneous refund.

The article above is reproduced with permission from Spidell Publishing, Inc.

If you receive any unexpected refunds from the FTB please contact our office immediately so that we may help you remedy this issue, and feel free to contact your Linkenheimer CPA if you would like to discuss […]

By Linkenheimer LLP|2022-08-03T22:05:26+00:00August 3rd, 2022|entity, ftb|0 Comments

2022 Pass-through Entity Elective Tax (PTE) Payment Due June 15

Beginning with the 2022 taxable year, taxpayers wanting to make election for 2022 tax year must make a pre-payment by June 15, 2022.

The amount due by June 15 is at least the greater of:

50% of the elective tax paid for the prior year;
$1,000.

Entities that did not elect to pay PTE in 2021 will pay $1,000 on June 15 to preserve the right to make the election for 2022. Entities that have elected PTE for 2021 tax year, or plan to elect if on extension, must pay in at least 50% of the final 2021 PTE tax liability. If the 2021 return is on extension, taxpayers should consider making a larger than needed estimate to provide a cushion and ensure that their estimate is equal to 50% of 2021 final PTE tax liability. There are no exceptions to the 50% of prior-year tax requirement for the June 15 payment, even if income is expected to decrease. If the June prepayment is underpaid, then the taxpayer is ineligible to make the election for that taxable year. (R&TC §19904) The June 15 payment deadline applies to both calendar- and fiscal-year taxpayers.

The remaining 2022 […]

By Linkenheimer LLP|2022-05-25T16:05:28+00:00May 25th, 2022|entity, tax, tax deadlines|0 Comments

California Pass-Through Entity Tax

Governor Gavin Newsom signed Assembly Bill 150 this past July. The new bill establishes an elective pass-through entity (PTE) tax framework that will allow California taxpayers to obtain relief from the current $10,000 limit on individual state and local tax deductions.

Qualifying pass-through entities include partnerships (publicly traded partnerships aren’t included) or S Corporations.

Qualifying entities must exclusively have partners/shareholders/members that are corporations, individuals, fiduciaries, estates, or trusts.
For tax years beginning on or after January 1, 2021 and before January 1, 2022
- PTE tax is due on or before the filing date of the original return. (March 15, 2022 for 12/31/2021 year-end entities)
For tax years beginning on or after January 1, 2022 and before January 1, 2026
- The greater of 50% of the elective tax paid in the prior year or $1,000 is due by June 15^th of the tax year.
- The remaining PTE tax is due on or before the filing due date of the original return.
The election must be made every year but once made, it is irrevocable.
The tax is 9.3% of qualified net income.
The PTE tax is in addition to other entity level taxes […]

By Linkenheimer LLP|2021-08-10T23:06:09+00:00August 10th, 2021|ca, CA tax, california, entity|0 Comments