What Your CPA Isn’t Telling You

Welcome to my What Your CPA Isn’t Telling You book summary!

booboo book rating: ★★★★★

A well-written and easy-to-follow book. However, it’s only going to be suitable for a very specific type of person. First, you have to be an absolute beginner. I’m talking at the very beginning. If you didn’t know that you would need a separate bank account for your business, apart from your personal bank account, then you’re at the level where this book would be suitable for you. If this is not the first book you’ve read, likely you’re already aware of 50-90% of it’s contents. Second, you have to be someone who is scared or intimidated by taxes and starting a business.

The way the book is written, it takes the reader on a journey through the situation of a couple and their CPA. As such, you have to read a lot of the story to get the information, and that’s not why I bought the book. I assume the only reader who would be interested in doing this is a beginner who wants to take it very slow. I couldn’t bring myself to read ten pages only to get a small nugget at the end. I started reading the chapter summaries after the second chapter.

I’m giving the book a low rating due to the author’s poor job of specifying the ideal reader. The title of the book suggests higher-level ideas and no where in the description does it reveal this is a storybook suitable for beginners.

You are reading my book review and summary of What Your CPA Isn’t Telling You by Mark J. Kohler. Be sure to check out my digital bookshelf for 100+ book summaries.

Summary of Appendix B – The Best Business Entity When It Comes To Taxes

  1. Sole Proprietorship
    1. Benefits
      1. simple and easy to start
    2. Drawbacks
      1. exposure to liability
      2. self-employment tax
      3. audit risk
    3. Do this when you are testing a business idea or when hiring children in the family
  2. C-Corporation
    1. Benefits
      1. Asset protection and corporate veil
      2. Ability to raise money (ie going public)
      3. Can write-off more expenses
    2. Drawbacks
      1. double taxation
      2. cost of formation and maintenance (similar to C- and LLC)
        1. must have a board of directors which meet regularly
    3. When it makes sense
      1. If you plan to go public or have more than 100 shareholders
      2. If you are single with $4k+ out-of-pocket medical expenses over and above insraucne
    4. Other Considerations
      1. Both C- and S- corp have equal asset protection
      2. More write-offs to save taxes (can be more of a waste of time and money to accomplish this)
      3. Incorporating in a taxfree state is not relevant if you sell to states with an income tax
  3. S-Corporation
    1. Benefits
      1. Asset protection and corporate veil (same as C-corporation)
      2. Saving on self-employment tax
    2. Drawbacks
      1. formation and maintenance costs (similar to S- and LLC)
      2. quarterly payroll reports (service costs about $150 per quarter)
      3. inflexible for tax planning (do not use for buy-and-hold property)
    3. When they make sense
      1. creating ordinary income, asset/liability protection, and/or saving SE taxes
    4. Other considerations
      1. A reasonable salary can be a percentage of net income and never less than 1/3
  4. Limited Liability Company
    1. Benefits
      1. asset protection
      2. their role in parternships and assigning income/expenses
      3. partners not liable for each other’s actions
    2. Drawbacks
      1. formation and maintenance costs (similar to C- and S-)
    3. when they make sense
      1. when you have an asset (rental property, investment account) and want asset protection
      2. when you have a partner is any sort of business venture
    4. Other considerations
      1. Single Member LLC – if owned 100% by either an individual or other entity, allowing asset protection and saving accounting fees (no separate tax return)
      2. S-Election LLC – electing to be taxes as S-Corporation
  5. Limited Partnership
    1. Benefits
      1. asset protection “charging order protection”
      2. gifting and transfer of income “Family Limited Partnership”
      3. family property and parental control
      4. estate planning (divorce protection)
    2. drawbacks
      1. administrative costs
      2. passive loss carryforwards (not for rental real estate which typically see’s losses)
      3. securities law

Summary of Appendix C – The C-Corp vs. S-Corp Debat – Who Wins?

Advocates of C-Corp argue that (counter-argument indented):

  1. offers more tax deductions to business owners
    1. sometimes hard to take these deducations; if you have more than one employee, need to give the same benefit to all; reductions if you own more than 5%
  2. double taxation can be avoided entirely
    1. Not if you have tremendous success, it becomes harder and harder having you take a larger salary or start other entities
  3. lower corporate tax rates can be utilities if there is taxable income
  4. S-Corp on verge of being eliminated by Congress
    1. hasn’t been for 50 years
  5. salary/net-income split is oversold and a reasonable salary definition is abused

Advocated of S-Corp argue that:

  1. deduction for C-Corp are limited at bet for the average small-bsuiness owner
  2. onerous double-tax problem ultimately has to be health with and cant’ be avoided
  3. S-Corp will continue b/c saving on FICA through a salary split is a reality

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