How a CPA can help companies save money with the right tax structure in place

As businesses grow or expand their operations, a major concern is how to structure the new enterprise. Do you put the new business in with your existing business or do you set up a new entity? As a CPA, I am working with companies where the first choice was best and others for whom the second choice made the most sense.

Before I go further on this topic, it's important that I make this disclaimer. As a CPA, I can advise my clients on tax issues. On legal and liability issues, it's a good practice to call upon an attorney for their advice and guidance. These decisions should not be made without consulting all your professional advisors.

With that out of the way, let me say that there are valid reasons for either scenario. For example, one of my clients had a retail sales business that had accumulated nearly $500,000 in operating losses. When he came to me about starting a fast food franchise operation, I was able to advise him to place the new operation under his existing corporation. This allowed him to recoup the losses, which would have otherwise gone unclaimed. By planning his enterprise properly, he saved tax on $500,000 in income.

Another client came to me because he had decided to open a new restaurant business in addition to his existing construction company. In this case, the new business had a partner that wasn't affiliated with the first business. Here, our only choice was to start a new corporation since the client didn’t want the partner to have ownership in his existing enterprise. The client was also concerned that liability from the construction company’s operations could affect the assets of the restaurant. By properly planning his business structure, these are no longer concerns for this client.

Working with an attorney who understands corporate structure and liability issues and a CPA firm who understands the tax implications of his or her decisions is the best way for a business owner to make a proper decision about how to structure a new business enterprise.

-- Dan Musick