The Law Offices of John P. McDonnell has an individual and business tax lawyer who can provide you with exceptional tax advice.
Starting the Business
Given the economic risks and potential liabilities of operating a business, most attorneys recommend that the business be operated in some form of entity ( a corporation, Limited Liability Company or Limited Partnership) that provides the owners with protection from claims against the business. Any of these entities can be a “taxable” entity or a “pass-through” entity. A taxable entity pays tax on its earnings, and the owners pay tax on distributions from the entity, resulting in two levels of tax. This problems is avoided by using a “pass-through” entity which pays no tax itself, but passes its income and deductions through to its owners, who pay just a single level of tax on the income. There are trade-offs, however, to using a pass-through entity, and we can provide the necessary guidance to help you make this important decision.
Many startup businesses are really “special projects,” such as the purchase of land and the construction of commercial buildings for sale. Often, such special project businesses involve a general manager who provides the expertise along with many “silent partners” who provide the funding. Such “special projects” may also involve a joint venture between two ongoing businesses. Such projects provide a wide range of options for allocating tax benefits and income among the owners, so reviewing this with an experienced professional is essential.
Structuring Executive Compensation
There are many options for providing tax-advantaged compensation to executives and other employees. Most people are aware of stock options and Incentive Stock Options, but there are many other compensation vehicles, including Restricted Stock Plans, Restricted Stock Units (RSU’s), Stock Appreciation Rights (SAR) and formal deferred compensation plans, some using a “rabbi trust.” A successful business will wish to provide employees with the best set of options to maximize income while keeping taxes low.
Tax planning opportunities often spring up in business operations. For example, if business expansion involves purchasing new equipment, leveraged leasing may be advantageous. The sale of business property (or investment) property can qualify for tax deferral by making a direct “like-kind exchange” or using a Deferred Sale Trust. In some instances, a business the sells products overseas, and also contracts out development or manufacturing of its products, might be able to qualify for some tax advantages of using an offshore corporation.
Of course, not only businesses but also individuals need to deal with the expanding IRS rules on Foreign Bank Account Reporting (FBAR) and the Foreign Account Tax Compliance Act (FATCA).
Mergers, Reorganizations and Transfers of the Business
As the business matures, the owners may seek to expand by the acquisition of a new business, or may seek to transfer the business to a “buyer.” Mergers and acquisitions involve some of the potentially most complex rules, from the seemingly simple (but not so much) purchase of stock, to statutory mergers, and exotic alternatives, such as the reverse triangular merger. Buying or selling a business (or more broadly, acquiring or transferring a business) will usually involve large sums of money and large potential tax problems. An experienced tax professional can guide you through the complex options and rules for qualifying for tax-advantaged results.
At some point, the owners of a small business might also be interested in transferring the business to the next generation. Again, there are several planning opportunities for a successful transition, including gifts or sales of partial interests, use of trusts, use of buy sell agreements, and other options that interweave with the estate planning for the older generation. Contact us if you are interested in learning more about our services.