Learning to Drive is Like Starting a Tax Practice

There were times when it was pretty scary. But, my daughter did learn how to drive. It was a little different from driving with her brothers, but I'm not nervous to drive with her now.

When her brothers were working on their "practice" hours, it didn't matter where they went. They pointed the front of the car in the direction that looked good and we took off. They didn't give it much thought; they just wanted to drive the car. I could understand... I was there once too.

My daughter, on the other hand, would get in the car. She'd put on her seatbelt and adjust the mirror. Then, before she would turn the key would ask, "Where are we going?"

She couldn't drive the car unless she knew where she was going. I don't know why. This was never an issue with her older brothers. They were just happy to be in the car and have control of where it went. But she wouldn't go unless she knew what the destination was.

This is a good way to look at your new business. Before you turn the key and start going, you should know where you're going. Let's take a minute and talk about some of the things you'll need to know to determine where it is you want to go with your professional tax preparation business.

"If You Come to a Fork in the Road, Take It."
-Yogi Berra

If you don't know where you want to go, it doesn't matter what you do when you come to a fork in the road. As you start your new business, you need to have an idea about where you're going, if you want to make your professional tax preparation business a success.

There are a number of things to consider. One of the most important is they type of business you choose to become. Simply put, how do you want to structure your business? Let's take a look at some of the options available and talk about what makes them all different and what you should consider as you make this important decision.

This is important information, so stick with me. Of course I need to preface this discussion by saying, I am not an attorney. You should talk to an attorney if you have specific questions about these legal entities. This is only meant to be an overview and give you a baseline of information. At the end of this article, I'll tell you about how to find out more information and discover how achievable, profitable and easy starting a professional tax preparation business really is.

Sole Proprietorship:

A sole proprietorship is a business which has no separate existence from its owner. In other words, you are your business. Your business obligations are your obligations. All the debts of the business are the debts of the owner. There are no partners.

Usually, a sole proprietorship means a person does business in their own name and there is only one owner. Because the business in really just an extension of the individual, everything the business owns or owes is owned or owed by the owner. If the business were to have a judgment filed against it, it would be as if the judgment was filed against the owner. At least the owner would be personally liable for the judgment.

A sole proprietorship is not a corporation. It doesn't pay corporate taxes. The owner pays personal taxes on the profits made, making it a much simpler accounting process.

Most sole proprietorships will register a trade name or "Doing Business As" (DBA) with their own name. This will allow the proprietor to do business with a name other than his/her legal name. This will also allow him/her to open a business banking account.

Partnership:

In a partnership, the partners share with each other in the profits or losses of the business. There are several types of partnerships, but we won't get into that here.

In a nutshell, a partnership is similar to a sole proprietorship, but the partners share all of the liability, responsibility for debt and profits. Like a sole proprietorship, a partnership is not a corporation and doesn't pay corporate taxes. The partners pay personal taxes on the profits made.

Limited Liability Company (LLC):

The Limited Liability Company is a relatively new entity in the United States. An LLC is similar to a corporation and a limited liability partnership. The LLC was adopted by many English-speaking countries because they have some advantage over corporations.

Basically, an LLC allows for the flexibility of a partnership structure within the framework of limited liability, similar to that granted a corporation. The requirements for creating and registering LLC's are simpler than the requirements that most states place on forming and operating a corporation.

Most states don't require annual meetings of shareholders, (LLC's have members), or bylaws. Most LLC's will use an operating agreement to provide for the governance of the company, however such an agreement is general more complex than a corporation's bylaws.

Most businesses that choose to operate as an LLC do so to avoid "double taxation." A corporation is taxed on its income and then the profits are taxed when distributed to the shareholders. Dividends are also taxed. Within an LLC the income of the LLC is not taxed, but each member of the LLC is taxed on their proportion of the taxable income, regardless of whether or not any distributions are made.

Because of this single level of taxation, the members can see a significant tax savings over the corporate form. Of course, you should consult an attorney regarding whether or not this is an appropriate business entity for your business.

Corporations:

A corporation, unlike a sole proprietorship, is a separate entity in itself. The word "corporation" derives from the Latin word corpus (body), representing a "body of people."

Within the framework of a corporation, the corporation forms a legal artificial entity either with or without shareholders. There are a number of reasons for organizing as a corporation.

1. Limited liability. Unlike a partnership, the stockholders of a corporation hold no personal liability for the corporation's debts and obligations. The corporation as a separate entity does. If you are just beginning your business, a lender might require a personal guarantee on a loan to the corporation, thus introducing personal liability.
2. Perpetual Lifetime. The assets and structure of the corporation will exist beyond the lifetime of any of its shareholders.

As we discussed earlier, corporations are taxed differently than sole proprietors, partnerships or LLC's. Both the corporation and the shareholders are taxed. There are several different types of corporations, which we won't get into here, but recommend that you talk to your attorney about what would work best for you.

"Price is What You Pay. Value is What You Get."
-Warren Buffet

There's a lot you need to know as you start your tax preparation business and Universal Accounting knows the answers to your questions. They can help you do your homework on the different entities that are available for your business and how they will influence the type of business you create.

Unlike most tax preparation schools, Universal will be there every step of the way to make sure that you know everything you'll need to know to start a profitable and exciting business as a professional tax preparer.

To discover more about the lucrative and satisfying lifestyle you can build for you and your family by starting your own professional tax preparation business, simply follow the link below. There's never been a better time than right now.

Show Me How a Tax Preparation Business is Achievable, Profitable and Easy