“WHERE SOLID LEGAL DECISIONS MAKE FINANCIAL SENSE!”

Miller & Vess, P.C.

Dallas Tax Attorneys | Corporate Counsel | Business Formation | IRS Representation | Contracts & Negotiations | Wills & Probate | Estate Planning | Business & Individual Tax Preparation & Tax Planning

972-231-8855

FAQ

Business & Corporation Information/Incorporation/Tax Consideration

What is a corporation?

A corporation is a separate legal entity that can shield the owners from personal liability and company debt. As a separate entity, it can buy real estate, enter into contracts, sue and be sued completely and separately from its owners. Also, money can be raised easier via the sale of stock; its ownership can be transferred via the transfer of stock; the duration of the corporation is perpetual (the business can continue regardless of ownership); and the tax advantages can be considerable (i.e. you are able to deduct many business expenses, healthcare programs, etc. that other legal entities cannot). Income is reported completely separate via a tax return for the corporation.

How long will it take to become incorporated?

We can incorporate your business in less than a week. We will provide you with all the paperwork necessary to open a bank account and start your business. Additionally, internal paperwork such as bylaws, shareholder agreement, minutes and issuing shares takes about 14 days.

What is an “S-Corporation”?

An S corporation is a corporation recognized by the State of Texas for liability purposes, but for Federal purposes it is deemed to be a flow through entity with unique tax characteristics. It has tax advantages that other types of entities don’t have.

How is a corporation taxed?

A regular corporation is taxed by the Federal Government on profits, and again when those profits are given to the shareholders as “dividends.” This is known as double taxation (the same money is taxed twice). Corporations file a separate tax return called form 1120. Some states also tax a corporation’s profits or apply a “franchise tax” to the company for the privilege of doing business in the state. Texas uses a franchise tax and the tax is based upon gross receipts.

“S-Corporations” avoid double taxation by adding any profits to the shareholders’ personal tax returns. For example, if your company made $1000 in profit last year, instead of paying Federal tax on that money, you would simply add it to your personal Form 1040 tax return (assuming you were the only shareholder, otherwise, the $1000 would be split up among the other shareholders). “S-Corporations” file Form 1120S but do not pay Federal tax. An S-Corporation is subject to the Texas franchise tax.

How is a corporation organized and managed?

A Corporation is owned by shareholders who elect directors, who appoint officers (President, Secretary, etc.) to run the day-to-day activities of the company.

In many cases, especially in small businesses, one person is all of the above. However, the company still maintains the flexibility to add shareholders, directors or officers at any point in the future and the officers always run the day-to-day operations.

What is a limited liability company?

A Limited Liability Company can be best described as a hybrid between a corporation and a partnership. It provides easy management and “pass-through” taxation (profits and losses are added to the owner(s) personal tax returns) like a Sole Proprietorship/Partnership, with the liability protection of a Corporation. The owners of an LLC are called “Members” instead of “Shareholders.” So in essence, it’s a like a corporation, with less complicated taxation and stock formalities. The heart of a Limited Liability Company is known as the “Operating Agreement.” This document sets the rules for operating the company and can be modified as the business grows and changes.

Can I form a one-person corporation or LLC?

Absolutely. All 50 states and DC recognize 1-person Corporations and LLC’s. Many of our clients are “1-person” companies.

Which entity should I choose?

Unfortunately, the answer is, it depends. All factors have to be considered prior to choosing an entity.

These factors include but are not limited to:

  1. who are the owners
  2. what is the nature of the business
  3. how much net profit is projected
  4. what are your long term plans for the business
  5. how is the business going to be financed.

We have been helping clients choose their correct entity for over 15 years and realize that each client brings a unique set of facts from which to build a successful entity.

What is a limited partnership?

A limited partnership allows for better creditor protection than corporations or limited liability companies. A creditor, if successful can attach the assets of a corporation or limited liability company. A creditor cannot get the assets of a limited partnership but instead can obtain a charging order, which in effect, gives the creditor the right to distributions from the partnership along with the other partners. Taxation is similar to a limited liability company in that the income flows through to the partners, and each partner reports their share of the income or loss on their income tax return.

Tax Questions

Is there an age limit on claiming my children as dependents?

Age is a factor in the qualifying child test, but a qualifying relative can be any age.

As long as the following dependency exemption tests are met, you may claim him or her:

  1. Qualifying child or qualifying relative test
  2. Dependent taxpayer test
  3. Citizenship or resident test
  4. Joint return test

If I claim my daughter as a dependent because she is a full time college student, can she claim herself as a dependent when she files her return?

Can I receive a tax refund if I am currently in a payment plan for prior year’s federal taxes?

How do I know if I have to file quarterly individual estimated tax payments?

What is the U.S. Federal Government Self-Employment Tax Rate?

The Social Security tax rate for 2007, 2008, and 2009 is 15.3 percent (12.4 percent goes to Social Security and 2.9 percent is applied to Medicare). See more information an easy-to-read chart.

My wife and I have been separated since May. She has one child (grandchild) living with her. Can we both file as single?

You and your wife may file either a joint return or separate returns. If you and your wife file separate returns, your filing status would be married filing separately. Your wife may qualify for head of household status.

I am divorced and pay child support. My children live with their mother and he claims them on her tax returns. Can I claim head of household?

No, paying child support does not qualify you for the head of household filing status.

Can a court order determine who takes a child for a deduction? Does the court order supersede the IRS requirements?

No, paying child support does not qualify you for the head of household filing status.

Wills, Probate & Estate Planning

If I die without a will, does the state get all of my property?

No, but dying without a will can make the process of getting your property to your loved ones much more difficult and expensive.

Can a living trust protect my property from creditors and lawsuits?

Unfortunately it cannot. A living trust is amendable or revocable by its creator (you), so for the purposes of dealing with creditors, it is the same as if you own the property in your own name.

Is it true that probate can take years and cost a lot of money?

Yes and no. The answer to this question depends greatly on the situation. If a client has a will and a cooperative family, the bulk of the work to be done in probate can be done quickly at a reasonable expense.

Can I deduct the cost of repairs or improvements I make to my personal residence?
No, although the Congress has allowed to taxpayers to get tax credits for certain energy efficient improvements.

Can I deduct the cost of repairs and improvements I make to my personal residence?

No, although the Congress has allowed to taxpayers to get tax credits for certain energy efficient improvements.

IRS Circular 230 Disclosure (U.S. Federal Tax Advice): Any U.S. federal tax advice contained in this website is not written in a form, nor is it intended, to satisfy the requirements for an opinion on which you (or any other taxpayer) may rely for the purpose of: avoiding penalties under the Internal Revenue Code of 1986, as amended; or promoting, marketing or recommending to another party a transaction (or matter) addressed in this site.