September 2021 - Keller & Associates CPAs, PLLC

Has your favorite hobby turned into a cash cow? Are you an independent contractor looking for the most tax advantageous entity for your income and expenses? Maybe you have put in the time with your employer and are ready to venture out on your own? No matter your reason, make sure you have the proper foundation for making your new business venture successful from the start. A popular analogy used in our industry is that of the “three-legged stool.” Without all three legs, your business, or stool, will not be sturdy enough to stand, so what are these legs?

The first leg; make sure you consult your Certified Public Accountant (or CPA) concerning the proper entity to accomplish your goals and limit your tax liability. Depending on expected income, the simple choice of entity could determine whether you are paying anywhere from 0% to over 50% in taxes. There are three main business structures to consider. A Single-Member LLC (Limited Liability Company), not electing corporation treatment, will be subject to both ordinary income and self-employment tax. While income reported on a K-1 to a shareholder of an S Corporation is not subject to self-employment tax, officers are required to take a “reasonable wage” for their services and report as ordinary income subject to FICA withholding. In a C Corporation, the profit is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends, creating a double tax. Depending on your entity, profession and income, there may also be a 20% Qualified Business Income Deduction available as well. These are all things to be considered by your CPA professional.

The second leg; make sure you hire a business attorney to establish and file all of the proper paperwork for your new business entity. Most entities will need to choose a name (and make sure it is not already used), file various paperwork at the state and federal levels to be properly registered, file for an Employer ID Number (EIN), and have proper entity agreements and formation documents. Depending on the entity, it may be necessary to have all contributions, ownership interest, shares owned, officer information, and general partners recorded before the ribbon cutting.

The third leg makes a wobbly stool sturdy. A CERTIFIED FINANCIAL PLANNER® (or CFP®) professional will be well versed in helping a new business owner decide on the proper financial considerations to further set the business up for success. This would include suggesting necessary insurance policies and plans, retirement benefits, the proper financial vehicles to save money for the business and working with the CPA to properly budget for the future.

You can see why it is important to choose the right entity when setting up a business, making sure everything is legally legitimate, and making sure the proper financial plan is in place. There are various ways to make income on your own and even more reasons to decide to do so. No matter your reason, make sure your stool has all three legs to keep you from falling on your face.

Published in the Victoria Advocate

Adam H. Baucom CPA/CFP® is a Senior Tax Manager for Keller & Associates CPAs, PLLC and is an Associate Advisor for KMH Wealth Management, LLC. He has over 10 years of experience in tax planning, tax return preparation and accounting.

In an (almost) cashless society, credit is king…or so it can often feel this way. A credit score is linked to a person just like their driving record or GPA. From applying for a loan to applying for a job, a decent score is necessary to thrive or at least not be squashed by outrageous interest rates. After conquering the feat of earning your own great credit, possibly learning the hard way, you may now face the question of how you can help establish and raise your child’s or children’s credit score to help set them up for financial success.

If you are interested in pointing your children in the right direction, begin with education. Smart money decisions are learned characteristics that begin at home. Money does not grow on trees and purchases made with credit cards must be repaid. As your child watches you swipe your “magical card” to pay for things, cultivate the knowledge of what credit is and that it must be repaid, or face consequences. Explain how you will receive a bill for the purchased items/services at the end of the month. Then you will spend your real money to pay the bill. It might be fun to associate lines on your statement with physical items purchased during that period. A way to practice this concept is having your child become a library member. They can “swipe” their library card to borrow books/DVDs/games at their leisure, but will have a due date and penalties for late fees, similar to a credit card.

Remember the “piggyback” rides you gave when your child was a toddler. Do some stretching, they are back! Adding your older child as an authorized user on your credit card can help the minor “piggyback” on the good credit behavior of the original card member. However, be warned, the authorized user approach works both ways. All users’ credit history can be enhanced or hurt. This is only recommended if you can be confident you will make regular and on-time payments on the card. You don’t even have to supply your minor access to the credit card, but entrusting them with the ability to purchase certain items (like gasoline or school supplies), can help promote independence and responsibility.

Another way to help your child maintain unscathed credit, is by monitoring their credit report annually for fraud and identity theft. Children 13 years and older can check their credit the same way as an adult, by visiting ANNUALCREDITREPORT.COM annually and requesting a FREE credit report. Unfortunately, children are an easy target of credit fraud and identity theft, since they typically have an unused credit until later in adulthood. Keeping your child’s personal information safe and reviewing their credit is invaluable.

Having a good credit score is almost as essential as having a valid ID. When your child faces the ultimate requirement of having a credit score, help ensure their credit worthiness by early education, utilizing your great credit history, and reviewing their credit report annually.

Published in the Victoria Advocate

Beth M. Koonce CFP® is a Lead Advisor for KMH Wealth Management, LLC.

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A Different Type of Child Credit

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