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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08
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Last Post Aug 8, 2007 11:06 AM by: deirdre@ebay.com
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Jul 27, 2007 12:24 AM
Topic: Member Workshop: Using Business Structures to Pay Less Tax

Host: dkennedycpa
Date: Wednesday 08/08
Time: 10:00 a.m. to 11:00 a.m. Pacific time
Location: Workshop Board

Description: There are good business structures, bad business structures and one really bad business structures. What’s the best one? It depends! Please join best selling-author and CPA Diane Kennedy and learn the five questions you need to ask yourself about your income, your expenses and your business to make the best informed decisions.

Cheers,

Deirdre
eBay Community Development
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Aug 6, 2007 3:51 PM
Hello. My name is Diane Kennedy. I’ve been a CPA and Tax Strategist for over 25 years. My specialty is working with small business owners and real estate investors. My tax education company, Tax Loopholes, LLC, teaches people through books like Tax Loopholes for eBay Sellers, tapes and seminars on how to take advantage of the legal tax-reduction strategies that available to everyone. Please remember that laws and practices vary from state to state and if tax, accounting, legal and other specific expert advice is required, the services of a professional should be obtained.

Diane Kennedy, CPA
www.taxloopholes.com
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Aug 6, 2007 3:51 PM
When the government wants to promote a specific public policy it often uses tax breaks to get the public interested. After all, who doesn't want to pay less taxes? There are two things that the government wants you to do: (1) Start a business and (2) Invest in real estate. So, to encourage you, the government offers all kinds of tax breaks. Because these tax breaks are sponsored and created by the government, they're safe, legal, and meant to be used.

Diane Kennedy, CPA
www.taxloopholes.com
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Aug 6, 2007 3:52 PM
eBay has generously set aside time for us to present these business-related sessions designed to help you make more and keep more money. We have a new workshop every month. Mark your calendars!

Diane Kennedy, CPA
www.taxloopholes.com
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Aug 6, 2007 3:52 PM
Today we're talking about how you can use business structures to pay less tax. There are good business structures, bad ones, and one really bad one. What's best for your business?

Diane Kennedy, CPA
www.taxloopholes.com
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Aug 6, 2007 3:52 PM
And, just before we begin I want to tell you about this month's free offer. The first 10 people who post on this workshop will be entitled to receive a free copy of my product, Business Structures for Business. We'll be tracking posts throughout the workshop and will announce the recipients at the end, together with instructions on how to get your free product.

Diane Kennedy, CPA
www.taxloopholes.com
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Aug 6, 2007 3:53 PM
Now, on with the workshop!

As I said above, where businesses on eBay are concerned, there are good business structures, bad ones, and one really bad one.

Diane Kennedy, CPA
www.taxloopholes.com
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Aug 6, 2007 3:53 PM
The Good: C Corporation, S Corporation, or an LLC (limited liability company) taxed as either a C or S Corporation. These business structures are ideally suited to a business run on eBay, where you are making what the IRS characterizes as "earned" income. Earned income is income you work for, either by selling goods or selling services. Either way, you actively do something to earn that money - which accurately describes what you do in a typical eBay business.

Diane Kennedy, CPA
www.taxloopholes.com
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Aug 6, 2007 3:53 PM
The Bad: Sole Proprietorship (also called a Schedule C business). There's a reason it doesn't cost anything to create or maintain a sole proprietorship. You don't get anything - as in no tax breaks, and more importantly, no legal protection. As far as the world is concerned you and your business are the same thing: if your business owes money, you owe money. If your business gets sued, you get sued. You are 10 times more likely to be audited (those are IRS statistics), and you'll pay more in taxes than any other type of business structure. Your income in a Sole Proprietorship will be subject to a 15.3% self-employment tax, on top of all other federal and state taxes.

Diane Kennedy, CPA
www.taxloopholes.com
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Aug 6, 2007 3:53 PM
The Really Bad: General Partnership. Take everything I just warned you about above, add a partner, and double all of the problems. Your partner can make whatever business decisions he or she wants, and you are just as liable for the consequences of those decisions as if you made them yourself. Your partner decides you need $10,000 worth of merchandise from China, and then skips town before the payment comes due? You get to pay it. Your partner is on a supply run for boxes and runs someone down in an intersection? You get sued, too. The worst part is, you don't have to do anything to make a General Partnership happen! As long as there are 2 of you involved in the business and you don't create a business structure to operate through, you will automatically default to a General Partnership.

Diane Kennedy, CPA
www.taxloopholes.com
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Aug 6, 2007 3:54 PM
Do I ever make an exception to the above statements? Very occasionally I will suggest to someone that they would be okay operating as a sole proprietorship. However, BEFORE you take this as my seal of approval, let me elaborate. If someone has no assets (i.e., rents their home, owns a car with a big bank loan, etc.) and either no or a very low income, and doesn't expect to make more than a couple of thousand dollars per year with their eBay business, then yes, I would agree that he or she would probably be okay in a Sole Proprietorship. They don't have much to lose. But if that doesn't describe you and your situation, then I most likely would not agree this was a good route for you to go.

Diane Kennedy, CPA
www.taxloopholes.com
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Aug 6, 2007 3:54 PM


So which business structure SHOULD you pick? Well, the one you pick will depend on how you answer these 5 questions:

1. How much money will I make with this business - and how much other income do I have?
2. Do I need "special" deductions, like medical expenses?
3. Do I want asset protection that goes both ways? (i.e., the business is protected from me and I'm protected from the business
4. Will I have a partner (or partners) now or in the future?
5. What is my exit strategy?

Diane Kennedy, CPA
www.taxloopholes.com
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Aug 6, 2007 3:55 PM
1. How Much Money Will I Make With This Business (And How Much Other Income Do I Have)?
We kind of addressed this up above, in the Sole Proprietorship (let's just call it an SP) discussion. If you've got little or no income, and don’t expect your business on eBay to generate more than a few thousand dollars per year, you're probably okay using an SP. But once your self-employment tax reaches a number that's equivalent to what it would cost you to operate as a formal business structure, it's time to rethink this decision.

Diane Kennedy, CPA
www.taxloopholes.com
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Aug 6, 2007 3:55 PM
On the other hand, if you have a regular, full-time W-2 job, and you depend on that income to live, you're potentially putting it at risk (as well as your business earnings) if you don't operate through one of the good structures. The same goes if you expect your business on eBay to make more than a few thousand per year. In fact, as soon as that eBay business starts to become a part of the money you count on for your living expenses, it's time to take some steps to protect it.

Diane Kennedy, CPA
www.taxloopholes.com
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Member Workshop: Using Business Structures to Pay Less Tax - Aug 08

Aug 6, 2007 3:55 PM
Let's assume you make enough income that you want to protect it. Then what? Your choices (as I see them) are: (1) a C Corp or an LLC taxed as a C Corp (which I'm going to call an LLC-C); or (2) an S Corp or an LLC taxed as an S Corp (which I'm going to call an LLC-S).

Diane Kennedy, CPA
www.taxloopholes.com
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