Today TaxMama® hears from several people who have questions about tax returns for entities they created – but never used. This recent question from Debbie, on behalf of one her clients, is far too common.
Dear Friends and Family,
STOP IT! Just flat out STOP IT!
Why do you keep forming LLCs, partnerships or any kind of corporation when you’re not really ready to do business?
Then, you have these legal entities, with stringent tax filing responsibilities – and you do nothing.
Or you start them and operate the business for a while – but don’t file tax returns – because you don’t really know how. And you just simply flounder around trying to deal with it yourself, instead of doing the logical thing – taking the whole to thing to competent tax professional.
Instead, you rack up non-filing penalties, like those for partnerships and S corporations. Did you know?
“The penalty is $195 for each month or part of a month (for a maximum of 12 months) the failure continues, multiplied by the total number of persons who were partners in the partnership during any part of the partnership’s tax year for which the return is due.”
“For each failure to furnish Schedule K-1 to a partner when due and each failure to include on Schedule K-1 all the information required to be shown (or the inclusion of incorrect information), a $260 penalty may be imposed for each Schedule K-1 for which a failure occurs, with a maximum penalty of $3,193,000.”
And let’s not forget state penalties.
If you’re not going to use the entity you created, you’re done with it, remember to dissolve it or shut it down. That’s so important.
Better yet, wait to incorporate or to set up your LLC until after you have your business plan and financing in place. Then establish your business entity and open a separate bank account for it. Yeah, stop operating it out of your own personal account or back pocket. Uh huh. Another brilliant thing tax pros like me are having to fix, when you’re audited.
A lot of businesses fail because of sloppy, indifferent and irresponsible practices.
Ahhhh….but the ones that succeed! Those start out doing it right in the beginning. With the current economic and administration climate, it’s like the Wild West. This is a GREAT time to start a business and get rich – but you must do some smart planning and then act on your plans.
Sure, we have no idea what the tax climate is. But if your business depends purely on the way the tax wind blows – you won’t succeed in the long run, anyway. Instead, find your vertical, target market. Learn how to reach them and how much time and money it will take to be profitable – and lay the groundwork properly.
There are so many thing people overlook, that I could write a book about the things you should be doing.
Heck! I did. Read it before you start your next business – or to improve your current one. Small Business Taxes Made Easy will help you avoid a lot mistakes and hundreds (or thousands) of dollars in penalties. And it will save you a fortune in taxes.
To make comments and toss in your own ideas, please drop into the TaxQuips Forum.
And remember, you can find answers to all kinds of questions about forming entities and other tax and business issues, free. Where? Where else? At www.TaxMama.com.
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