Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for August 12th, 2007

Should tax advisor be in same state?

Posted by taxguru on August 12, 2007

Q-1:

Subject: Illinois CPA Recommendation?

Would you happen to know a good Tax Advisor in Chicago, IL.
I am starting my new business and would like to start in the right foot.
I appreciate your feedback,
Thanks

A-1:

The only names I have are on this page.

As I say in my tips for selecting tax advisors, geographic location shouldn’t be the main basis for selection.  Most good professionals have clients all over the country.

I hope this helps.  Good luck.

Kerry Kerstetter

Q-2:

I believe your point of view on selecting the best Tax Advisor not necessary being close to client’s location. But I was thinking in the view that my business will operate in the State of Illinois. Wouldn’t I need a tax advisor in the state of Illinois for State Taxes?

 

Also can you help me in your perspective about incorporating in Nevada? I heard many advantages incorporating in Nevada than in Delaware or Illinois. I would like to start on the best route for my start-up company. I am thinking about choosing C-Corp as my entity because of the tax deductions and tax bracket compare to LLC and S-Corps. Can you provide me with your insight on this?

 

I am excited to start thinking as an Entrepreneur and not as an employee. There is a lot of benefits that an average employee does not have. I been reading and listening to audio books on RichDad by Robert Kiyosaki and as well as other Leadership and Tax benefits audio books. But mainly its my passion to service my clients in Computer Information Technology Services because that is what I do best.

Thank you for your quick response to my first question

A-2:

While it would be nice to have someone intimately familiar with your state’s tax system by being located within the state, that’s not as critical as you think. Most tax pros routinely handle out of state tax issues.  Back in my California CPA practice, I had a CPA on staff who we gave all non-California tax returns to do by  hand.  Now, the Lacerte tax software has added several state programs to its mix, so I use it to prepare several different state tax returns every month. 

Since you are considering operating a Nevada corp, that brings up the issue of who would handle its taxes if being within the state is critical.  Would you have one tax pro for your Illinois activities and a different one for your Nevada operations?  While dividing the workload can sometimes make sense, you will generally find that working with one firm that can better appreciate the big picture will be more efficient.

I do have extensive experience with Nevada corps and have actually written about it several times on my blog and website; so I don’t have time to rehash everything here.  That is another key issue you need to work on with your personal professional tax advisor.

I will warn you about the number one misconception I constantly encounter.  Just establishing a corp in Nevada will do nothing to reduce your Illinois income taxes if you actually conduct your business operations inside the borders of Illinois.  You will still need to file Illinois income tax returns and pay taxes to that state.  Depending on how your business activities are handled, there may be ways in which to source the income to Nevada and legally avoid having any Illinois tax obligation.  That is something that you need to work on with an experienced professional tax advisor because if you do it incorrectly, you could subject yourself to some serious penalties.

Good luck.  I hope this helps.

Kerry Kerstetter

 

 

TaxCoach Software: Are you giving your clients what they really want?

 

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Changing From C to S Corp

Posted by taxguru on August 12, 2007

Q:

Hello, Mr. Kerstetter,
I came across your website today. I was wondering if you can answer me a quick question:
Our fiscal year is April 1st to March 31st. What would be the time frame that we can change to an S corp?
Appreciate your help!

A:

You need to do some more research and work directly with an experienced professional tax advisor before you take the step of converting to an S corp. 

As I have explained several times on both my blog and website, one of the biggest pitfalls to converting from a C corp to an S is the fact that you will also have to convert your fiscal year to a calendar year, which will force you to lose all of the benefits of having a different fiscal year. 

You may find that retaining your current C corp and starting a new S corp will give you the best of both worlds.  A good professional tax advisor should be able to explain how using two corps can work in your best interest.

I don’t know how much of my website you have looked at, but here are some key pages you should study before consulting with a professional tax advisor:

Comparing S and C corps
   <a href="http://taxguru.org/corps/scorp.htm&quot;

Benefits of Different Fiscal Years
   <a href="http://taxguru.org/corps/taxyear.htm&quot;

S Election Instructions From IRS 


Good luck.  I hope this helps.

Kerry Kerstetter

 

 

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