SEE YOUR TAX PRO FIRST!

I have covered this issue here at TWTP before – but it bears repeating.

A recent discussion thread at a tax preparer Facebook group concerned a potential new business client with three partners and 5 already created “entities” (corporation, partnership). 

Pardon my cynicism (especially when it comes to lawyers) but I expect the 5 entities were created on the advice of an attorney without regard to the tax consequences – an attorney who would get 5 separate fees.

To be fair, an attorney may not necessarily be trying to pad a bill when providing incorporation advice and suggesting multiple entities – but the attorney may not be fully aware of all the tax consequences of the entities, and their interactions, that they propose.

 

Very, very important - if you are considering entering into a business enterprise visit your tax professional and your accountant (if not the same person or firm) before you visit your attorney.  Often times getting out of an entity formed in error can be more expensive than forming the entity. 

It may turn out that you don’t need the attorney at all – a one-person LLC or corporation can be formed easily and inexpensively directly with the appropriate state agency online without a lawyer.  And it is important to be aware that formal incorporation is not always the best way to go for a one-person business (although being an LLC, if not a corporation, is). 

However if there are more than one individuals involved in the business, more often than not you will need a lawyer to make sure that you are fully protected – from your potential partners in the enterprise.  You may need a lawyer to draw up the business agreements for the partnership and your own personal lawyer who represents you alone to review the agreements.

Bottom line – when considering going into business consult a tax professional first!

TTFN