Charitable Giving

Charitable Giving

As 2014 winds down, you may be planning to complete your charitable giving for this year. Here are a few tax concerns to keep in mind.

1. Your gift is tax-deductible only if it is made to a “qualified” charity.

2. The value of services you render to a charity are not deductible.

3. Out-of-pocket expenses while doing volunteer work for a charity, such as telephone charges, travel and uniforms are deductible.

4. Auto expenses may be taken at the standard mileage rate of 14 cents per mile or you may deduct your actual expenses.

5. Tickets to charitable events are only deductible to the extent the price exceeds the value received. for example, you pay $35 for a show put on by the charity of which the price of the ticket is $10, your contribution deduction is $25.

6. Cash contributions of any amount must be substantiated by proper records. For those under $250, a bank record, cancelled check or credit card usually will suffice.

7. Those of $250 or more must generally be substantiated by a written acknowledgment from the charity obtained before you file you tax return.

8. Non-cash contributions exceeding $5,000 other than publicly traded securities require a qualified appraisal.

9. Contributions are deductible only if you itemize deductions. And, there are limited as to the amount you can deduct in any one tax year.

There are many events that occur throughout the year that can affect your tax situation. Call Tim Pearson & Co. today at (248) 720-0608 or schedule an appointment online by clicking here.

Business Entity Pros and Cons

Tim Pearson & Co. Business Entity Pros and Cons

Are you thinking about starting your own business? One of the first steps to consider is what type of entity you should choose for your business. Here’s a list of the most common business entities along with the ‘Pros’ and ‘Cons’ of each:

Sole Proprietorship

Pros
– No formal creation process.
– Easy to operate and dissolve.
– No separate tax return.
– Easy to integrate business use of home deductions.
– No double taxation of profits.
Cons
– No liability protection.
– Self-employment tax is assessed on entire profit of the business.
– Transfer of ownership can be complex.
– Limited access to fringe benefits for owners.
Good Fit:
– Seasonal or part-time businesses.
– Businesses with little liability.
– Home based businesses.
– Businesses intended to operate for the owner’s life only.

Single Member LLC

Pros
– Simple creation process.
– Easy to operate and dissolve.
– No separate tax return.
– Easy to integrate business use of home deductions.
– Liability protection for member, except for malpractice.
– No double taxation of profits.

Cons
– Self-employment tax is assessed on entire profit of the business.
– Transfer of ownership can be complex.
– Limited access to fringe benefits for owners.
– Laws regulating LLCs vary widely among states.

Good Fit:
– Businesses with potential liability in operations.
– Businesses intended to operate for the owner’s life only.

Multimember LLC

Pros
– Limited liability for all members, except for malpractice.
– Unlimited number of members.
– Separate entity from members, allowing for greater flexibility in operations.
– Ownership is in the form of membership interest and can be transferred more easily than ownership in a single member LLC.
– No double taxation of profits.
Cons
– Requires a separate tax return.
– Laws regulating LLCs vary widely among states.
Good Fit
– Businesses requiring equity capital.
– Businesses with potential liability in operations.
– Businesses intended to exist beyond the lives of the members.
– Businesses expecting changes in ownership over time.

General Partnership

Pros
– Easy to create.
– No limit on partner number or type.
– Can be used to hold investments in other businesses and consolidate multiple lines of business.
– Flexible allocation of profit, loss, and distributions.
– Favorable tax treatment when liquidated.
– No double taxation of profits.
Cons
– Requires a separate tax return.
– Unlimited liability for all partners.
– Difficult to dissolve or change ownership without substantial planning.
– Requires tracking of basis for partners, both inside and outside the partnership.
– Individual partner’s share of income is subject to self-employment taxes.
Good Fit
– Two established businesses who wish to work as one.
– Partners wishing to consolidate multiple entities into one entity.

Limited Liability Partnership

Pros
– Liability protection for limited partners.
– Separate entity from partners.
– Ownership can be transferred within the rules of the partnership agreement.
– Limited partners’ liability is limited to their investment in the business.
– Limited partners pay self-employment tax on guaranteed payments only.
– No double taxation of profits.
Cons
– Must have one general partner with unlimited liability.
– Limited liability status for damages can be lost for a variety of administrative reasons.
– Restrictions on partners based on entity type.
– Requires a separate tax return.
– Requires tracking of basis for partners, both inside and outside the partnership.
Good Fit
– Businesses with partners not actively involved in business.
– Businesses with equity capital needs.
– Businesses with exposure to liability.

C Corporation

Pros
– No liability for non-active stockholders.
– No restrictions on ownership.
– Ownership can be transferred through the sale of stock.
– Separate entity from stockholders.
– Fringe benefits for owner-officers.
– Can have ownership interest in any other business entity.
– Perpetual existence.
– Raising capital can be achieved by issuing stock.
Cons
– Double taxation of profits.
– Complex and expensive to create and maintain.
– Require regular board of directors’ meetings and minutes.
– Requires a separate tax return.
Good Fit
– Businesses with ownership in multiple other entities.
– Businesses with significant exposure to liability.
– Businesses intended to exist eternally.

S Corporation

Pros
– Liability protection similar to that of C corporations.
– No double taxation of profits.
– Ownership is easily transferred through the sale of stock.
– Separate entity from stockholders.
– Self-employment tax is not assessed on the entire profit of the business.
– Losses can offset shareholders’ other taxable income.
Cons
– Complex and expensive to create and maintain.
– Requires a separate tax return.
– Requires regular board of directors’ meetings and minutes.
– Requires tracking of basis for stockholders.
– Ownership is limited to specific types of entities.
– Deductibility of fringe benefits for owner-employees is limited.
Good Fit
– Businesses with significant exposure to liability.

There are many events that occur throughout the year that can affect your tax situation. Call Tim Pearson & Co. today at (248) 720-0608 or schedule an appointment online by clicking here.

Tax Materials, Inc. “Business Entity Pros and Cons”. Retrieved from http://www.thetaxbook.com.