Category: Business Taxes

Should You Set Up a New Company As An LLC or S Corp?

There’s a lot that goes into getting a new company off the ground. Although it’s normal for this experience to be quite hectic, it is important to take care of all the basics. That includes choosing a formal structure for your company. Whether a company suddenly takes off or hits hard times, having a formal structure in place is the best way to protect everyone who is involved.

Now that we’ve established why it’s so important to establish a new company as a legal entity, the next question to answer is which structure to choose. The two most popular options are the limited liability company and the S corporation. While the structures of an LLC and S corp share similarities such as income pass-through to owners and limited liability protection, there are some key differences, which we’re going to cover right now:

Limited Liability Company

The basic premise of an LLC is it takes the limited liability features of a corporation and combines them with the tax efficiencies and operational flexibility of a sole proprietorship or general partnership. With an LLC, each member (which is the term used for owner) uses their individual federal tax return to report profits or losses. Another reason new companies may choose this structure is it’s relatively easy to operate and administer. There are also relatively few restrictions in regards to distributing earnings through profit-sharing.

S Corporations

Like an LLC, shareholders in an S corp are taxed at their individual income tax rates. This is because income, losses, deductions and/or credits are passed through the S corporation structure. That being said, there are still significant potential tax advantages to consider, such as only wages paid to owners or employees being subject to FICA tax for Social Security and Medicare. Other net earnings from an S corporation that pass through to shareholders are considered passive income and not subject to SECA tax. In terms of administrative operations and record-keeping, S corporations do require more work than limited liability companies. This structure is also limited to a total of 100 shareholders, all of whom must be individuals or certain trusts (as opposed to partnerships or corporations).

The Bottom Line

If you feel like you now know more about both options but still aren’t sure which one is right for your new company, the good news is you don’t need to answer this question on your own. Donohoo Accounting Services has over two decades of experience helping clients with financial and tax issues. We’ve worked with a wide range of companies, which means we can assess your specific situation and advise you about which structure will benefit your company the most. Contact us now for a free consultation by calling 513-528-3982.

Preparing for a Big Accounting Job Interview

Whether you’re searching for your first accounting job out of school or are in the process of looking for the next step in your accounting career, doing well during job interviews are a key part of reaching your goal. Although it’s completely normal to be a little nervous about a big job interview, the good news is there are clear steps you can take to prepare.

As far as what to expect during an accounting job interview, behavioral interviews are commonly used throughout the industry. The focus of this type of interview technique is to learn about your past behavior and use that as a way to evaluate what can be expected from you in the future. During this type of interview, you can expect questions that focus on your core competencies. Another important thing to keep in mind about behavioral interviews is they pose questions in the form of a situation, action, and result.

Now that you know a little bit more about what to expect during an accounting job interview, we want to share some actual examples that may come up:

Deadlines and Details

Given that deadlines and details both play important roles in the professional lives of accountants, expect questions about these topics. With the former, you may be asked to provide an example of a time when you had various tasks to complete in order to meet accounting deadlines. And for details, you may be asked about what steps you take to ensure that your work is completed with full attention to detail.

Communication and Teamwork

When people outside the industry think of accounting, they often picture individuals who are poring over spreadsheets on their own. While accounting does involve plenty of independent work, communication is still essential within a company or firm of any size. The same is true for teamwork. That’s why behavioral interviews for accounting jobs tend to include questions about these topics. You may be asked to describe experiences where you effectively communicated within your department, with someone in a different department or with a client.

Solving Problems and Setting Goals

If you’re looking for your first accounting job, you can expect to encounter plenty of situations that require problem-solving once you land it. And if you’re already in the accounting field, you’re well aware of why problem-solving is such an important skill. The same is true for setting goals and being able to contribute to hitting goals set by the organization. As you prepare for your accounting job interview, think of examples of situations that required problem-solving, along with other occasions when you worked towards a personal or organizational goal.

By giving yourself time to prepare and keeping the topics we covered above in mind, you’ll be in the best position to do great during your accounting job interview!

How are “bonuses” taxed? Different than regular wages?

As an employee, getting a raise is exciting for a few important reasons. Not only does it validate what you’re contributing to the company, but it also means getting a bigger paycheck every two weeks. Getting a bonus is also a great validation of what you’re doing at work every day. While a bonus comes with plenty of excitement, it can also create a little confusion. The reason that type of confusion is so common is people aren’t sure what effect a bonus will have on their tax filing.

 

What Does the IRS Think of Bonuses?

Supplemental income is the label that the IRS uses to classify bonuses. This label is used for other benefits like payouts for accumulated sick leave, severance packages, moving pay and vacation pay. So you have your regular salary, and then anything else you receive goes in the supplemental income category. While that information is helpful, it doesn’t fully answer the question of how bonuses are taxed at the federal level.

 

Flat Rate vs. Aggregate Taxes

The most common method employers choose for taxing bonuses is flat rate. As long as a bonus is separated from regular income and under one million dollars, it will be taxed at a rate of twenty-five percent. In the event that a bonus does exceed one million dollars, the tax rate goes up to 39.6 percent.

While most employers go with the flat rate method to handle the taxation of bonuses, there is another option available. Known as aggregate taxing, this approach involves adding bonuses to the latest paycheck and taxing the entire amount together. Not only can this method be a little more complex to process, but another reason it’s not as popular is it often results in a higher withholding, which means an employee will be left with a larger tax burden. It’s important to note that regardless of which method is used, bonuses are also subject to Social Security and Medicare taxes.

 

How Bonuses Are Taxed in the State of Ohio

On top of making sure your bonus is properly accounted for when you file at the federal level, it’s also important to understand your state obligations. According to the Ohio Department of Taxation’s website, “the rate is at least 3.5% percent. Ohio Administrative Code 5703-7-10 provides that withholding agents must withhold at least 3.5% on supplemental compensation such as bonuses, commissions, and other non-recurring types of payments other than salaries and wages.”

If you have any additional questions about bonuses or other tax issues, you can reach Donohoo Accounting Services by calling 513-528-3982.

What You Need to Know About Tax Extensions

Although it’s always best if you can get your return filed on time, there are plenty of situations that come up which prevent people from being able to file their tax return by the date it’s due. These types of delays are actually quite common with professions like securities traders. One of the reasons that traders tend to struggle with hitting the tax filing deadline is they face more complexity than employees with easy-to-report W-2 income, portfolio income, and itemized deductions. Traders have involved trade accounting issues, trader tax status analysis and reporting strategies, business vs. investment expenses and other unique considerations.

 

Whether you’re a trader, business owner or just someone who needs time to get everything together required for filing your tax return, here are some helpful tips on getting an extension to file:

 

The Automatic Six-Month Extension

 

The simplest way to get the extra time you need to complete and file your tax return is by using Form 4868. Known as the Application for Automatic Extension of Time To File US Individual Income Tax Return, this form doesn’t require a reason to request an extension. However, it’s very important to understand that what the form gives you is an extension of time to file a complete tax return, not an extension of time to pay taxes owed. Even if you use this form, you will still want to estimate and report what you think you owe based on your tax information received.

 

Understanding State and Federal Penalties for Being Late

 

On the same form mentioned above, you can see a detailed explanation of federal late-payment penalties and late-filing penalties, including how to request penalty abatement. While it’s best if you can pay the full amount of what you think you owe, paying something is better than not paying anything. A general rule of thumb is the late-filing penalty is ten times more than the late-payment penalty. That’s why even if you can’t pay in full, you should file your tax return or extension and pay as much as you can.

 

Do You Need to File Quarterly Taxes?

 

After going through the process of filing for an extension and then getting your tax return filed within the six-month window, you may decide that you want to avoid going through this additional stress again. One option for individuals like traders, business owners and freelancers is to make quarterly estimated tax payments during the year to avoid underestimated tax penalties

 

If you need help with an extension or any other aspect of your taxes, you can have a free consultation with a member of the Donohoo Accounting team by calling 513-528-3982.