When Should My Business Restructure?
The ideal goal for a small business owner is to grow the company and start making a profit. However, when that success happens more rapidly than expected, there are several things for an entrepreneur to consider if the business is not structured properly to withstand the growth and avoid tax issues.
With the help of an experienced CPA firm well versed in tax law, you can determine if restructuring is the best option, as well as when that right time will be. Below are some examples of when it might be the ideal time for a small business to take the next step in their expanding business.
Providing You Access to a Multitude of Tax Breaks
New tax laws are making it more advantageous for small business owners to thrive. Sole proprietorships, S-Corporations, and LLCs, are known as pass-through businesses. These entities report taxes through the owner’s income taxes instead of the business. These tax rates are down from previous years, but when income starts to increase, the stiff tax rates can have quite the impact on your bottom line. When eligible, those businesses that restructure into an S-corporation can see that obligation diminished by nearly 20%.
Smaller businesses, particularly sole proprietors, are not eligible for other tax breaks as S-corporations and partnerships. Self-employment taxes can be unexpectedly costly for smaller ventures, but when reclassifying under a larger entity, this obligation is reduced. Additionally, larger companies can take advantage of tax breaks by taking deductions on such aspects as medical insurance.
The Right Time for Change
Restructuring your business can allow you to incorporate certain strategies into your planning process that can help save you money and take advantage of the many tax breaks available. Unfortunately, too many owners leave money on the table when a different structure could have provided them with a smaller tax rate.
When revenue starts streaming in faster than anticipated, restructuring the business so it’s eligible for those lower rates is essential before you find yourself with an enormous tax bill. By working side by side with a dedicated team of CPAs, you’ll be prepared when the time comes to restructure.
Contact Foley & Giolitto CPA Today
Ryan Giolitto and our dedicated team are truly devoted to helping our small business owners navigate their way toward success. We specialize in developing effective tax strategies that will save your hard-earned money regardless of the size of your company. Call our North Scottsdale office today to set up a free initial consultation.
Foley & Giolitto CPA, PLLC | 08/06/2018