It would be wise if you form an LLC or limited liability company if you are interested in doing business. You may save some of your business money if you know how to make proper use of LLC tax savings which come in various forms.

LLC companies should pass through taxation laws. In other words, LLC company proprietor should report their profits or share of losses in their company on individual tax returns. That is, the company cannot be taxed as an individual. Unlike C corporations, in which company profits or losses are considered in tax at corporate level, these LLC companies and its shareholders are also taxed upon their individual dividends. Therefore, if your LLC company is small, and has only a few shareholders, then you can save significantly by LLC tax savings whether you are an owner or a shareholder.

You would be taxed individually by the government as a sole proprietor if you are an individual owner of LLC. But if there are more than one owners, then IRS would tax you as per the partnership. However, even if an LLC is owned only by a few people and the company is really the owner then you can avail LLC tax savings because the government policies would not tax both at the corporate level and the personal level.

Moreover, the chances of audit by the IRS are also minimal if you form your company in this way along with LLC tax savings. Statistics obtained by studies depicts that non incorporated tax payers who files Schedule C due to their businesses often run between two to three percent chances of being audited by IRS. However, it has been observed that LLC?s run about 0.33% chances of being audited. It would not be wrong to say that you can avail various other benefits along with LLC tax savings, by forming your company in this way. Most of us always survive to avoid an audit in our company!

You should talk with your attorney and your tax advisor whenever you plan to convert your business into LLC company. You need an attorney to help you with LLC regulations as they differ by state and only an expertise of your state?s laws can deal with this easily. It would be better to confirm with your tax advisor what would be the exact implications as opposed to sole proprietorship or a partnership if you convert your business into an LLC. Once you have gone through all the facts, its time to decide about the right kind of entity for business.

It can be difficult to understand all of the tax implications you would have to incur of owning a business. Remember that it is always beneficial to stay informed as the way your business would be set up or runs could have a big financial impact on your personal finances and your business too.

Tax Deduction Checklist

The best tax deductions checklists are found in three places:

Your past years’ tax returns; With your tax professional; and Through an online tax website

Past Years’ Returns

Just by looking at the deductions you have been able to take in the past, you will get a good idea of what deductions you can take this year. If you had mortgage interest, real estate taxes, IRA contributions, and charitable contributions last year – you probably have them this year as well. The same is true of medical expenses, various taxes, that safe deposit box you keep, and if you are required to pay certain expenses, like alimony. Finally, any business deductions you have taken in the past, for a home office, travel, mileage, etc. is likely to follow a pattern you have created and budgeted consistently.

Tax Advisors

Tax professionals are great at helping you identify deductions for one time occurrences and helping you organize your records and thoughts on how to approach the deductions that are available. You may need advice on issues that you have never faced before and those that run the risk of gaining or losing large sums of money. If so, your tax advisor is a great resource for addressing these issues.

Online Help

TurboTax Online, for example, has exceptional checklists for going over everything you need to consider before preparing your return and making sure you don’t miss anything important. It asks interactive questions, points out possible deductions you may forget, and reminds of the things you need to have or consider when taking a specific deduction.

Ok. Let’s talk about how to get the IRS to accept a pay plan for the back taxes you owe. Malcolm C. of Lexington, KY writes me asking how he can set up a payment plan with the IRS on his $19,000 tax debt.

Let’s review some of the facts of the case first:

1. Malcolm owes for two years; 2003 and 2004.

2. All of his tax returns are filed.

3. He is not under a current levy/garnishment.

4. He does not owe for business taxes, just personal.

It turns out Malcolm claimed “exempt” on his W-4 for 2003 and 2004 to try to get some extra cash. And now the IRS wants their money. The IRS wants Malcolm to pay $753 per month on a payment plan. But he can only afford to pay $400 per month. What are his options? This is a very common scenario that I see over and over again with my clients.

First of all, you will never get away with claiming “exempt” on your W-4. Eventually you will always have to pay the piper (plus penalties and interest). In almost every situation, the extra money you got during the exempt period just isn’t worth the hassle and expense you experience later on. If the IRS wanted to get super technical about it, they could probably make a criminal charge of tax fraud stick by claiming that you knowingly and willfully underwithheld on your income taxes. However, the chances of you getting even investigated (let alone indicted) are next to none in a case like this. Bottom line: Just don’t do it.

SOLUTION: The best thing for Malcolm to do is call the IRS ACS (Automated Collection System) line at 1-800-823-1040 and request a “Streamlined Installment Agreement.” A Streamlined Installment Agreement is available to any taxpayer as a matter of right if you owe less than $25,000; have all of your tax returns filed; and only owe for personal income tax (no business payroll tax debts). The Streamlined Installment Agreement is calculated by taking your total tax liability (in this case $19,000) and dividing it by 60 months. So Malcolm is looking at a monthly payment of approximately $320 to $325 per month over the next five years (60 months) that he can set up with the IRS ACS unit.

The benefit of a Streamlined Installment Agreement is that the IRS will not levy or garnish you as long as you are on the pay plan. It becomes another monthly bill and you just pay it for the next five years (it will actually be a little longer than 5 years since penalties and interest will still accrue). Now the IRS reserves the right to file a Federal Tax Lien even if you are making the payments to preserve their interest in the debt until it is paid in full, so don’t be shocked if this happens. Remember a Lien and a Levy are two different things. The lien will not take your money, your wages, or your property. It just sits on your credit report until the debt is paid.

Also, you need to make sure that you stay compliant for the future. Any non-compliance will put the agreement in default and then all bets are off. The IRS defines “compliance” in this case as making sure all of your returns are filed on time (usually by April 15th) and that you do not run any new balances (all taxes are paid by April 15th for the previous year). Good luck Malcolm. In a future article I will explain how you can get a reduction in a similar case by getting the penalties and interest on penalties removed.