Home Business Success? Pt. 3 The Structure

And you thought tax season had just ended. Actually, for most of us the reporting part has just ended. But it’s really not the reporting that concerns me most of the time.

The biggest problem is, “What are we doing to prepare for it the rest of the year? You can do it the hard way and not do anything until the annual threatening date of April 15th or you can be consistent and plan for it all year long by keeping good records.

Once you get things in place, it’s only a matter of reporting and if you have a daily planner/tax diary, that is with you all the time, it is even easier. It also makes a great audit proofing tool. And as the IRS is gearing up to do more audits, it would behoove everybody with any business dealings to use one. Then it is only a matter or transferring data at the end of the day or week.

Now, as I promised, let’s get back to the corporate structure and tax reduction. This may be a little advanced for the newbie, but I suggest everyone be familiar with it so when the opportunity arises, you will recognize it. With a little more work, the payoff is exponential, and I have seen this process work hundreds of times. I’m going to give you a structure a little beyond the basics. But I can only breeze over it here.

When I teach people, I generally start out with a Living Trust. A revocable one, so you can change it and have control. You should check over it at least once a year. You may be thinking, “My attorney made me a will, that’s all I need.” And wills have their place. But without going into much depth I will just say this-All wills in every state are public knowledge, are probatable and can easily be contested. Need I say more? A Living Trust is private, does not need an attorney to distribute assets at death and is the ideal instrument for holding your estate together. Wills are best when used in conjunction with a Revocable Living Trust.

Next, I encourage a management entity. A regular C-Corp. is the best choice for that. Corporate law has been around for more than 250 years. Everybody knows how they work, and unless your name is Rockefeller or Kennedy, it is not the place to put assets. Its only job is to manage other entities like LLC’s and LP’s which is where your assets go.
So, now you have three tiers:
1) Revocable Living Trust-Avoids probate, holds estate together.
2) C-Corp- Protect personal assets, reduce taxes, and more.
3) LLC or LP- Flow through for taxes, holds assets, do daily business.

Let me briefly tie it together for you: And this is just an over view.
The corporation is attached to the living trust for estate planning purposes. The corporation is a partner to the working entity, an LLC or LP. And here is one of the keys; you learn to integrate entities to maximize tax reduction, manage your own retirement plan, maximize asset protection and with the home business deductions you really can have your cake and eat it too.
If this all sounds a little confusing, it really isn’t, with some guidance. The most confusion comes when you do it in a foreign (meaning a state you don’t reside in) state. A no tax state. But well worth it. But that’s for another day. Maybe I’d better do a part IV.
See you next time.