FAQ
Q: What is an advantage to an LLC over an S-Corp?
If my business is setup as an S-Corp, is this a right move?
A: Generally it is recommended to get an S-corporation for earning income, and an LLC for owning assets. The S-corp. (or LLC taxed as an S-corp.) lets you divide your income into salary (subject to FICA) and dividend distributions (not subject to FICA).
Q: What are some of the changes people need to watch for from the IRS as they file their 2010 taxes?
A: I think the biggest change for 2011 is that, for one year only, the Social Security deduction for employees was lowered by 2% of gross. So everybody's pay check will go up 2% of their gross salary.
And for the first time this year, we can't file a personal paper return for a client unless they specifically ask us to in writing. The IRS is trying to get to 100% electronic filing. For the same reason, businesses have to make payroll deposits online now. You can no longer walk a check to the bank. Also, for 2011 they raised the estate tax limit to $5 million per person, so very few are going to have to file an estate tax return.
Q: What are some of the strategies you suggest to clients to save money at tax time?
A: With proper planning, there are a lot of things people can do, including gift-giving to children and relatives, charitable contributions, putting money in pension plans, 401K, IRAs and even health savings accounts. I like to say that people don’t plan to fail; they fail to plan. And planning is a year-round process. There's a lot more to it than paying taxes.
Q: Do you have any caveats for people in this financial environment?
A: We still have this chaos of short sales, loan modifications and so on, and there are a lot of tax effects from these actions. For example, a short sales will not only hurt your credit, but also damage your ability to get another mortgage for anywhere from two to four years, depending on the institutions. This is something that has to be seriously considered. I think one thing we're seeing right now is that people want their account server to act more as a consultant than just a tax preparer. This is something we at Melnick, Lilienfeld & Castonguay have always preached. I've been associated with the firm since 1989, and one think I've always liked about it is that everyone here really wants to help clients achieve their goals or work out any tax issues. We're large enough to provide clients with a wide range of specialized services, but small enough to know them on a personal level.