www.qns.com I LIC COURIER I MARCH 2018 43
TAX TIPS
Tax
Strategy
BY JOHN SAVIGNANO, CPA
Stategy 1
Entity Structuring
e choice of the best business entity for your needs is important and
complex. We have seen many business owners, even with the advice of
counsel, make the wrong decision, or make no decision at all, by
operating as a sole proprietorship or general partnership. is can
have devastating consequences both from a tax and an asset protection
perspective. We have heard tax professionals counsel their clients to
wait a few years before setting up a corporation in order to save the
extra costs of ling a corporate return. Or they recommend “keeping it
simple” with an “S” Corporation, ignorant of the insucient
protection this structure provides.
Here’s a lesson from the school of hard knocks-all it takes is one
lawsuit gone bad, and the small cost of setting up the right
structure will pale in comparison to the damage you incur. A
single judgement could cost you millions of dollars and follow
you for the rest of your life.
It is better to avoid a lawsuit altogether than to win aer a protracted
and costly legal battle.
ere are powerful strategies to limit your risk and actually deter
lawsuits. ere is no need for risky oshore trusts and international
business corporations which have come under scrutiny by the IRS and
Federal Government.
LLCs and Limited Partnerships come with the built-in benet of the
charging order. is can create an enormous asset protection
advantage for you at no additional cost. Yet few, if any, tax or legal
professionals fully understand these entities, so they leave you
unnecessarily exposed. Properly utilized, the charging order can
prevent creditors from seizing your assets.
en there are the tax benets. For most people, tax planning ends on
December 31st of each year. at’s because December 31st is the
default year end for most businesses, corporations and sole
proprietorships alike. With the proper structure, you can shi income
from one tax year to another-even to a place with more favorable tax
rates.
How It Works In Practice
Most people take the prot from their business at the end of the year
either as a bonus or in dividends. is is done to save the FICA tax. If
you just leave the money in the business at the end of the year, Uncle
Sam still taxes it-either at your individual rate or at the corporate rates.
But, if you have two entities, each can have a dierent year end. For
example, you could have an “S” Corporation with a December 31st
year end and a “C” Corporation with a June 30th year end. e “S”
Corporation might be your core business and the “C” Corporation is
established to do your sales, marketing or management. e rst step
of income shiing, “upstreaming,” reduces the taxable income in your
core business. e second step is to expense o as much of this income
from your management company as possible, using more of the 400
deductions contained in the Tax Code-we are focusing on only a few
of these strategies in this report. is can eectively reduce your tax
base to a fraction of what it would be otherwise.
John Savignano is a partner with Savignano Accountants &
Advisors located at 47-46 Vernon Blvd., Second Floor, in Long
Island City. If you have any questions or require additional
information, please call John at 718-707-0955.
