Corporate Tax

Who should pick C Corporation?

This is a very common question asked by our readers.
Who should use a C Corporation as a business entity?

You should pick a C Corporation if you:

  • Have noncitizen or greencard share holders.
  • Might look for additional funding from venture capital firms.
  • Want a flexible way of splitting profit among business owners.
  • Want to reduce medicare and social security taxes by setting up salaries for employees and/or owners.
  • Want to provide fringe benefits to owners. E.g. life insurance, education, and transportation costs.
  • Want to provide health benefits (through your corporation) to your employees and owners.
  • Want to reduce your taxes by splitting your earnings between your shareholders and the corporation.
  • Want your business earning to stay with in your business so that it can grow.
  • Want to transfer your share among other business partners/share holders.
  • Want to provide stock options to employees as benefit.
  • Want to make it easier for someone else to purchase your business.
  • Want to provide a travel and entertainment benefit to your employees.
These are some of key reasons why you should pick a C Corporation as your business entity. However, you should consult with a professional before setting up your business structure.
Good consultant can advise you to ensure your business structures provides good asset protection and reduce your tax liabilities.
Make sure to understand the requirements of business structure.  For example, C Corporation requires business owner to hold annual meeting and keep the meeting minutes.  You can lose your protected corporation status if you fail to follow the requirements.

Why Set Up A Proper Business Structure? Case Study

Sanjiv Gupta CPA specializes in setting up businesses in San Jose, Santa Clara area. His office is located in Sunnyvale CA. You can call 510-825-7563 to set up a “Business Formation” appointment.

Let’s talk about the incorporation from the tax and business survival point of view.

First question you need to ask is who is forming the corporation. US Citizens, Green Card Holders, or H1B Visa. What kind of corporation you will form is going to depend on this.

Second, what kind of business will you be doing. Some businesses are better off having an LLC and some businesses are better off with S or C Corp.

S Corp can help with self employment tax and LLC can be quite easy to maintain.

Each business is unique, and it is important to discuss the tax implications and business survival.

Couple years ago, two brothers formed a partnership to purchase a Macdonald Franchise. However, they concealed this partnership from Mac-Donald and signed the franchise agreement under one of the brother’s name. New Macdonald franchisee died few months later. This caused a major turmoil in the family.

Surviving brother claimed the share in the estate, but his request was rejected. This was mainly due to the fact that partnership was canceled from Macdonald, and their franchise agreement was based upon misrepresentation by the brothers.

Moreover, this gave a reason to Macdonald to terminate the franchise agreement. Talk about the loss of the brother and loss of asset like Macdonald Franchise.

We can all learn from this example and set up our business structure properly. Give Sanjiv Gupta CPA firm a call if you would like to discuss your business structure.

Setting Up Business Structure Animated Video

Animations is an interesting way to communicate your message.  I am hoping our readers would like this small and simple animation clip.   I am thinking about making an animated video of Sanjiv’s “Joke of the Day”. Please do share your thoughts and leave your feedback about the video.

Buy Sell Agreements

Understanding Buy-Sell Agreement

Business owners with partners can protect their self by having a buyout agreement (aka buy sell agreement) in place. This agreement allows stock holders to purchase partners interest in the company under certain triggering event such as retirement, or death. Agreement can also be structured so that company partners have first right to purchase the interest in the company.

Common type of buy-sell agreement are:

1.) Stock-repurchase agreement
2.) Cross-purchase agreement

First one is commonly used in small businesses. It allows the company to buy out the departing owner interest. For example, if one of the partners decides to leave the company, his or stocks can be purchased by the company thereby increasing the share of other partners in the company.

Cross-purchase agreement is bit different. Instead of company purchasing the stock of departing partner, remaining owners are allowed to purchase the departing owner’s stock.

Who need a buy-sell agreement?

Any business with partners should have a buy sell agreement in place. This agreement should be drafted and signed as soon as the company is formed. Agreement will protect the owner leaving the company along with partners remaining in the business. Buy Sell agreement can help businesses avoid costly conflicts when the buyout time comes.

What methods are used to set the price?

Pricing should be based on the evaluation of your business. This is where your CPA will come in. IRS section 2703 prevents a business owner from picking random low value for the evaluation purpose due to estate planning laws. However, your CPA or lawyer should be able to help you come up with the fixed price agreement.

Better way to evaluate your business is to use the valuation process agreement. It is a good idea to engage an independent valuation analyst to determine the fair market value of the business. There is a good chance that fixed value agreement may undervalue or overvalue your business. However, independent valuation will get you much closer to the correct number.

You can engage an independent valuation analyst on a yearly basis to determine the correct value of your business and update your buy-sell agreement accordingly.

Do you have a buy-sell agreement for your business?

Wealth Summit : Sept 15th 2012

Sanjiv Gupta CPA will be presenting at the Indo American Event in Santa Clara on Sep 15th 2012.  This event will be focused on helping individuals and small business owners build wealth.  We will discuss how one can reduce their effective tax rate, secure their estate and grow their income.   You will have an opportunity to meet with Sanjiv Gupta CPA at the event as well.

You can register for this event here.


Want Funding For Your Business ? Look at Crowdfunding

For a beginner, the term crowdfunding may be new. However, it is quite easy to understand. It simply means collective drawing of resources or investing the collective money drawn from various resources to some activities as investments etc.

Crowdfunding implies collective drawing of money from disparate resources, usually through the internet in order to support the earning initiatives by other people and organizations. Crowdfunding can be used in the wide spectrum of activities like disaster management, political propaganda, movies promotion, research and development etc, the term crowdfunding is more in use now than it was ever.

Legality – How legal is crowdfunding?

Once you understand the meaning of crowdfunding, the natural question that follows is how legal is crowdfunding? Is it safe for any business house to go about crowdfunding? If so then how shall one go about it? Questions likewise follow and to get full knowledge about all of the above, here’s a bit of discussion about it all.

Though Jobs Act regulations favor crowd funding, there are of course more significant ways companies should deal with them. For starters, owners of small businesses should state the requirements to investors and only move forward once all the rules defined.

Again the rules are not without their risks and the biggest and most grievous of them is getting involved in a scam. Often the brokers, introducing themselves as know – all of crowdfunding are treacherous and so the warning, that unless with proper documentation such people cannot and should not be trusted. Offers that promise smart deals in a short time can never be good offers.

Crowdfunding will be available next year for small business owners. However, businesses should watch out for companies looking to make a quick buck. As per NASAA reports such owners are already after investors.

Single Member LLC’s gets Charitable Contribution Deduction

Before getting into the details of Single and dual member LLC, one must be sure about the facts that constitute LLC. The Limited Liability companies or enterprise has the unique capability of blending corporate elements and partnership structures whereby one can reap rich profits. In this form, the company is legal where both the partners enjoy limited liability. The prior motive of LLC’s may not be entirely profit oriented, it may be a partnership for other social causes as well.

Based on this there was a recent announcement from the IRS that any contribution to a national LLC which is totally owned and managed by an IRC organization shall be treated like any other that has been mad in the name of charity. There is condition though, that the LLC is not liable for taxation as any other corporation.

The IRS although had been earlier provided with guidance to conduct both public charities and private foundations in case of tax treatment for operating through single member LLC. The release of a Notice 2012 – 52 which came to the fore only after 31st July, 2012 acted as the initial guide for both the corporate and individual contributors which stood tantamount to the deductibility of various contributions. If left unaddressed or not the treatment of tax to an individual member , or “disregarded entity” these limited liability companies are organized in a place of foreign jurisdiction.


Limited Liability Company Advantages

The advantages of a limited liability company are  as follows

  • They have the flexibility to choose and get elected to be taxed as a single owner, partnership firm, hence a great deal of flexibility is enjoyed by an LLC
  •  Member of an LLC are liable to enjoy distributive share of profit and loss, income or expenditure and so there is a sense of moderation in the practices of an LLC.
  • Members are greatly protected in compared to other firms as per the state corporate laws.
  • There is hardly much paper work or record keeping one has to get involved in LLC.
  • Only one person can also set up a LLC.

The advantages are aplenty and one only need to arm oneself with full knowledge to deal with such matters intelligently and successfully.


How Tax Shelters Help To Reduce Tax Burden?

Tax shelter is a great way of reducing tax. It can effectively reduce your tax burden to the IRS (Internal Revenue Service). But tax shelters can turn to be a problematic issue if the law is violated. So make sure that the tax shelters are legitimate.

Tax shelter is actually a financial arrangement that helps to reduce a taxpayer’s tax burden. Tax shelters accomplish such difficult jobs by decreasing and sometimes eliminating your taxable income. This is also a great tool to create tax-deferred or tax-exempt income.

You have to be very cautious while setting up the tax shelter. It should be legitimate. If it’s proven abusive then it can create a big problem. When the purpose of a tax shelter is avoiding tax, then that is considered as abusive tax shelter. There are many other purposes involved with legal tax shelters.

A legal tax shelter can effectively reduce the taxable income. The main purpose of setting up legal tax shelter is to report the IRS very little of your income. Tax shelters are extremely beneficial for high income professionals. Especially big companies are to take the help of tax shelters for avoiding tax payments.

The most common examples of tax shelters are charitable donations, pension plans, retirement accounts, municipal bonds and so on. Investments like life insurance and health insurance plans can also be considered as tax shelters. Investing in a real estate is also a perfect example of legal tax shelter. So it can be said that tax shelters work great as an incentive for investment.

Tax shelter is actually a great strategy. The more intelligent reason you can show to the IRS the easier will be to reduce the amount of payable tax. Larger firms have no way but to use this subtle way of cutting the taxable amount.


Without much stretching the laws you can really set up a beneficial tax shelter. Charitable donation is a legitimate way to avoid taxation. The authorities of IRS monitor tax shelters efficiently. So going with laws is the best way to reduce your taxable amount. To know the laws better you must visit

Surviving small business ordeals with a friend!

Wow never had you imagined that there will come a time when surviving that business venture with your friend has become so difficult. It has strangely put your friendship at jeopardy too. This was indeed uncalled for.

While starting that business together there were high hopes running on both ends but then tightening of funds, lack of trust and other minor quarrels started to get the better of the two of you ad finally the business. It may be vice versa also. But whatever the case outcome is for the detriment of both. So why not take care of it and nip it right at the bud?

Don’t know how? Well here’s what you should do.

Important Ways To Keep That Venture Rocking!

Talking is rocking for all business – it is extremely important that both the friendly partners engage in honest conversations. It’s absolutely crucial that they talk out their differences and share the solutions to the problems bothering them.

• Have written proof/ agreements – the agreement of your business should be in writing. These come in handy at times of disputes and can effectively put things in order. So this is another aspect to keep the business partnership going.

•Separate attorneys must be made to review the documents separately – in order to gain full knowledge about how the agreement affects you, you must get a separate attorney for yourself ad so does your partner. Whatever may be the case, there should be an attorney’s involvement towards the understanding of the signed document.

•Draw the line between friendly and business communication – Be vocal about any important issues at the work place. Any issue, major or minor must be approached immediately to stop them from going out of proportion. No matter what leave the business in office.

•Bond outside office – discuss issues other than business when not in office – This goes a long way towards saving both the business and the friendship. Mutual respect is enhanced, and tensions avoided.

What ever may be the case it is important to note that the two important aspects of life, that is, work and friendship must not be let go of easily.

Things to Consider Before Closing Down Business

Well if you are closing your business it’s not bad news. You are sensible enough and you know that lately your business have not been bringing you the money you thought it would and so you took the right decision, or may be that you have got a plush offer etc. Once the decision has been made now the only thing to focus upon is how to close that small business most effectively.

Well the above words might have sounded crazy but nevertheless they are facts. If you are quitting from your small business venture then do it properly. And to help you in that here are the few checklists that you should keep in mind while retiring.

Things of importance while clearing that office

  •  Of course as per the IRS norms for closing your business, you need to ensure that important forms regarding the company’s annual tax returns and deductions are filled out and kept in proper order for future requirements. Again documents related to business property disposal, reporting of exchange of similar type property and documents relevant with changing form of the business.


  • Also if you can check on internet sites and browse relevant pages that may guide you towards closing that business most successfully, then you can try “ Close your business: What you need to do “ FindLaw page. Here you will find in detail about the necessary things you ought to do before closing down that business. Besides other important suggestions it gives detail about the concepts of licensing, tax considerations, dissolution and many more.


  • If you want personal opinions too then also you can go to the Hub pages site learn about how to close a small business.
  •   “A Road Map to Closing Down Your Business (FindLaw)” this has step by step remedies of suggesting proper methods of closing down your business.




So whatever may be the reason for you closing down of business do it properly and I wish you all the luck for your next venture. For more information visit the site