Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for July 11th, 2004

Choosing A Fiscal Year

Posted by taxguru on July 11, 2004

I do hope my point in regard to seeking professional assistance is getting through, as in this recent email exchange.


I found your website on a search and had a simple question. If as you say Corporations should have a different Fiscal year from the Calendar year what month should you choose?

I am starting an private NV LLC that will be used for Investing. What month would be appropriate?

Thank You

My Reply:

This first thing you should discuss with your personal tax advisor is how the LLC is going to be treated for tax purposes; which obviously depends on whether there are more members than just you.

If it is to be treated as a sole proprietorship (if you are sole member) or partnership or S corp (multiple members), you have no choice in the fiscal year. It must be from January 1 through December 31.

If you choose to have the LLC taxed as a C corp, a tax year ending other than December has several benefits, as I described on my website. There is no universally applicable best month. However, I have found June 30 to be the most useful since it gives six months on either side to make any adjustments between the personal tax year-end of December 31.

I hope this help. Do not proceed any further without the assistance of a competent professional tax advisor. Most decisions made at the beginning cannot be changed later on; so you need to make sure they are the best for your situation.

Good luck.

Kerry Kerstetter

(No relation to the French-looking anti-American currently running for President)

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Posted by taxguru on July 11, 2004

Car Donation Proposals Worry Charitable Sector – End of the line for that little scam; helping people deduct more than their vehicles are really worth on the open market.

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Posted by taxguru on July 11, 2004

Some messages to the IRS could do more harm than good…

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Setting Up Corporations

Posted by taxguru on July 11, 2004

I constantly see people jumping into decisions about setting up corporations without adequate professional guidance. Every day I see postings on the Q&A boards I check stating something like, “I just set up an S corp. Now what do I do?” The time to consult with a tax pro is before choosing which kind of entity and which states are best for the particular situation.

I received this email the other day:


I read your interesting article on the possible advantages of a C-Corp vs S-Corp.

Very enlightening.

My question is:

I reside in Florida, and want to set up a corporation…. Trying to decide between C, S, and LLC

I will be the main principal, but will have other partners who contribute both financially and through in kind work, and I will give them some shares.

You mentioned that it only costs $50 to set up a corp in Arkansas.

Is that a viable option for me since I live in Florida? Will I have to travel to Arkansas for legal issues? What are the issues of setting up a corp in a different state than I am residing?

I assume you do this type of thing….

What is your fee for setting up a corp, and what kind of other services do you provide to your customers? Tax filing, required paperwork, etc?


My reply:

There are companies that will act as legal in-state agents for corporations when their owners don’t live there. Delaware and Nevada seem to have the highest number of them since those states are generally the best for corporations.

Regardless of which state has chartered your corp, you need to be careful of the source of the corp’s income. Even foreign chartered corps have to report and pay taxes to the state in which the income is earned. For example, Florida has a corp income tax. Regardless of where you charter the corp, you will still have to pay Florida income tax if it appears that the income was earned inside Florida.

There are several very simple methods routinely used to either source the original income through a tax free state or shift it there via inter-company payments. You should definitely work with a tax pro who is knowledgeable in this area. Trying it on your own is asking for trouble of several kinds.

I wish I could be of more help, but you will need to work on a good strategy for your situation with another tax pro. We are currently too overloaded with work and are unable to take on any new clients.

You can check out my tips on selecting a personal tax advisor:

Good luck.

Kerry Kerstetter

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