August 28/September 4: Volume 32, Issue 6
By Roman Basi
There has never been a better time than now to have a discussion on how to create the best asset protection for your business and reduce the tax liability from both the perspective of the business and personally.
The House Ways and Means Committee continues to forge ahead in its effort on tax reform. In July the committee held a hearing with several small business owners who testified about the effects of the current, albeit complicated, tax code and how the new proposals put forth by a subcommittee as well as the White House would help encourage investment across the country.
Asset protection and tax liability go hand in hand; to achieve one, the other must be properly structured. One of the newest methods for asset protection gaining steam across the country is the advent of the Series Limited Liability Company—a Limited Liability Company that has elected to create multiple divisions (or series) that will operate within the company.
While not all states have created these legal structures yet, the number grows each year. And even if your business operates in a state that does not have such an entity, it is quite possible they will allow one that is registered in another state to be filed as a foreign entity in the state in which you are located. The state of Florida, for example, recently revised its Limited Liability Company Statute. While it does not currently have a Florida Series Limited Liability Company, the state expressly provided for the benefits and protections of them if they are filed as a foreign entity.
With a Series Limited Liability Company, each division can possess its own assets and have its own liabilities; the liabilities of one division do not cross over to another. So, for example, if you have a company that has machinery and equipment, you can create a series that owns the machinery and a separate series that owns the equipment—yet you still only have one company. The main benefit, experts say, is you have divided up any liabilities between the two categories of assets, protected them from each other but still have the simplicity of only dealing with one company.
Reducing tax liability
With the changes in the tax code on the horizon, it is increasingly important to understand the current taxation on your business and if your choice of entity selection will be the best going forward. For example, the House subcommittee is proposing to lower the S Corporation tax rate to a flat 25%, which might help someone who is in a high individual tax bracket but hurt a small business owner who is in a lower individual income tax bracket. To that end, a proper analysis of your current tax structure becomes very important when looking at the tax liability of your company to determine whether you need to consider changing the tax status of the business.
I will discuss both topics—asset protection and reducing your taxes—during my presentation at the International Surface Event (TISE) on Tuesday, Jan. 30, from noon to 1 p.m. I will also be available for free, 30-minute consultations after my education session that afternoon. Visit the TISE website today at intlsurfaceevent.com for the complete education program, event activities and registration details.
Roman Basi is an attorney and CPA with the firm Basi, Basi, & Associates at The Center for Financial, Legal & Tax Planning. He writes frequently on issues facing business owners.