US CORPORATE TAX ACCOUNTANT VANCOUVER

CROSS BORDER BUSINESS ACCOUNTING & TAX SERVICES

Financial Statements and Accounting Services

“If you cannot measure it……. you cannot manage it”.

Constant changes in financial accounting standards make financial statement preparation a highly technical and time consuming task. We provide well-organized solutions to your needs along with financial statement preparation, business accounting, and analysis to ensure that you are receiving timely and accurate information to manage your business entity.

Our financial statement preparation service includes:

• Prepare monthly financial statements (balance sheet, income statement, statement of cash flows, and other schedules important to management). Monthly, quarterly, or yearly.
• Produce Financial Package to management/owners.
• Discuss the financial statements and overall financial health of the company with owners or management.
• Review fluctuations in accounts between actual balances and prior year balances, budgeted balances, etc.
•  Analyze accounting estimates for reasonableness.
• Recording various month-end transactions (i.e. payroll, investment activity, accrued liabilities, depreciation, amortization, etc.) as necessary.
• Reviewing monthly transactions in the general ledger to make sure that all material transactions are accounted for in accordance with Accounting Principles Generally Accepted in the US.
• Preparation of complex transactions including options, warrants, convertible securities, lease transactions, sophisticated debt service arrangements, notes payable, etc.
• Review of accounting reserves (i.e. allowance for doubtful accounts receivable, reserve for obsolete inventory, etc.).
• Review material transactions for proper coding to general ledger accounts.
•  Bank reconciliations.
• Maintain general ledger.
• Journal entries and closing entries.
• Fixed assets.
• Account analysis and reconciliations
• GAAP or Tax Basis.
• Other services as needed or required.

Our tax firm specializes in Cross Border Taxes for American citizens and businesses in Canada. Call us at (604) 281-3316 and let us help you with your business accounting needs.

TAXATION OF BUSINESS ENTITIES

We guide our clients through a full range of business tax preparation decisions with strategies that minimize your tax liabilities. Our expertise, experience, analysis and thorough research allow us to optimize financial opportunities to be found in existing as well as recently altered tax laws.  We are knowledgeable and understand the US tax code and regulations. 

We offer services in the following areas:

• Choice of entity structure
• Sole Proprietors
•  Partnerships
• Corporations (C or S)
• LLC
• LLP

Choice of Entity

The “choice of entity” decision is one of the most important decisions facing practitioners and their clients who own and operate businesses.  There are several forms to choose from, each of which generates different legal and tax consequences.  Further, there is no single form of entity that is appropriate for every type of business owner or entity that a practitioner is likely to encounter.

Choosing the appropriate form of entity in which to operate a business is a complex decision.  It depends upon many factors, including the owners’ needs and desire and the particular characteristics and needs of the business in question.  Federal and State tax consequences of each type of entity also play an important role, especially in closely held entities where the parties’ combined tax liabilities should be analyzed as part of the decision-making process.

Performing this assessment requires an understanding of not only the major tax and nontax aspects of each form of business, but also of how the comparative advantages and disadvantages of each relate to the needs of a specific client.  The decision involves multiple levels of questions.  The answers to some questions serve to immediately eliminate the use of certain kinds of entities.  Then remaining questions elicit answers to questions that can be weighted in favor of one type of entity, versus another.

Entity Classification Chart

Schedule C—Sole Proprietorships

Persons carrying on an unincorporated business as a sole proprietor in the US are subject to income tax on their gross income less allowable deductions attributable to that income, and must file Schedule C with their tax return for each business, each year. Complex rules involving the amount of investment "at risk", the degree of "material participation" in the venture, and the nature of the business are used to determine the extent of and the timing of the deduction of losses from self-employment activities.

Self-employed persons are also subject to the Self Employment Tax, which amounts to 15.3% of self-employment income on the first $117,000 and 2.9% thereafter, and is imposed in addition to any income taxes payable.  The Self Employment Tax is used to fund social security system.  One half of self-employment tax is deductible from income prior to the calculation of tax liability.

Self-employed persons may, depending on their income in any given year, be required to pay quarterly installments of income tax in advance for the next taxation year. The required installments are normally calculated on the basis of income reported in the current year on Form 1040.

Schedule C is attached to the individual or sole proprietor’s personal tax return Form 1040.

Partnerships

A business entity with two or more owners is, by default, classified as a partnership for federal tax purposes (unless the entity is a corporation, estate or trust).  A partnership can be a trade or business, financial operation, investment vehicle or a joint venture.  A partnership is a pass-through entity.  Income and loss is passed through to partners, who then report the partnership income on their individual tax returns.  The partnership itself does not pay income tax. 

A partnership computes income and expenses from business operations.  Net profit or loss is allocated among the partners according to the partnership agreement, generally in proportion to ownership interest.  Income or loss that is passed through to a partner is referred to as the partner’s distributive share.  

The characteristics  of income, gains, losses, deductions or credits included in a partner’s distributive share is determined as if the individual partner directly received the income or incurred the expense from the same source from which the partnership received the income or incurred the expenses. 

Each partner pays tax on his or her distributive share of income in the year earned or received, regardless of when the income is distributed.  Accordingly, when a partnership distributes cash or property to a partner, the transaction is generally non-taxable.

Form 1065 US Return of Partnership Income, reports business income, deductions, credits, gains and losses resulting from partnership operations.  Form 1065 includes a separate Schedule K-1 for each partner, which shows each partner’s distributive share of income, along with certain other separately stated items.  The partnership must furnish a copy of the Schedule K-1 to each partner by the due date, including extension, of the partnership return.

Returns are due by the 15^th day of the fourth month following the close of the tax year (April 15).  The extended deadline is five months.  For calendar year 2014 returns, the extended due date is September 15, 2015.  File Form 7004 to extend the filing deadline.

Corporations

Limited Liability

A corporation formed under state law shields owners from liability for the corporation’s actions.  A shareholders’ risk of loss is limited to the amount invested in stock.  This is in contrast to sole proprietors or general partners in partnerships, who are personally liable for debts of the business.  State laws determine an entity’s liability status.  A proprietor or partnership cannot received limited liability status simply electing to be taxed as a corporation under the check the box rules.

Courts have disregarded the limited liability status of corporate shareholders in the following circumstances:

• Fraud.
• Bad faith.
• Failure to observe corporate formalities.
• Need to accomplish substantial justice.

A shareholder owning 100% of the stock of a corporation is particularly susceptible to having the corporate veil pierced.  Incorporating a business is not a substitute for liability insurance.  A corporation will not protect a shareholder from liability directly linked to the individual. 

S-Corporations

S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

Form 1120S is the U.S. income tax return for an S Corporation.  Report all income and expenses, gains and losses.  Schedule K-1 is the form on which the income or losses and dividends of an S corporation’s shareholders are reported. To be eligible to file Form 1120S, the corporation must attach to the Form 1120S — or have previously filed and had accepted by the IRS — Form 2553, Election by a Small Business Corporation.  A K-1 is prepared for each S corporation shareholder to designate the percentage of shares owned by each. This information is used to determine the percentage of income or loss to assign to each shareholder.

An S corporation, which qualifies to be taxed under Chapter 1, Subchapter S, of the IRS code, is exempt from paying federal income tax on all but certain types of income. The S corporation passes profits or losses directly to shareholders who then are taxed at their respective individual rate when they file their Form 1040. The S corporation has the option of distributing profits in the form of dividends or retaining profits to grow the company. Regardless of whether they are distributed or retained, profits are treated as distributed for IRS tax purposes. This means that shareholders may be taxed on income that they do not actually receive.

A shareholder’s pro rata share of income and deductions of an S corporation are passed through to shareholders on Schedule K-1.  S corporation items are generally allocated to shareholders on a per-share, per-day basis.

Every S corporation must file a return, regardless of the amount of income or loss.  It must file even if it stops conducting business.  Filing ends when totally dissolved.  The filing deadline is the 15th day of the third month following the close of its tax year or date of dissolution (March 15).  The extended deadline is six-months.  For calendar year 2014 returns, the extended due date is September 15, 2015.  File Form 7004 to extend the filing deadline.

C Corporations

In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. A corporation can also take special deductions. For federal income tax purposes, a C corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders.

The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.

A C-corporation files a Form 1120.  For federal income tax purposes, a C corporation is a separate tax paying entity.  A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders.  This creates a double tax.  Income is taxed to the corporation when earned, and tax again when distributed to the shareholders as dividends.  The corporation does not receive a tax deduction for the distribution of dividends to shareholders.  Unlike S corporation and partnerships, various types of income do not retain their character as they pass through the C corporation entity.  A C corporation does not act as a conduit when making distributions to shareholders.

Every corporation must file regardless of the amount of income or loss.  A corporation must continue to file until it is dissolved.  The filing deadline is the 15th day of the third month following the close of its tax year or date of dissolution (March 15).  The extended deadline is six-months.  For calendar year 2014 returns, the extended due date is September 15, 2015.  File Form 7004 to extend the filing deadline.

Differences in C Corporations vs S Corporations

LLC—Limited Liability Company

Limited liability companies are created and regulated under the laws of each state.  An LLC has the limited liability characteristics of a corporation, but it’s generally treated as a partnership for federal income tax purposes (Subchapter K of the IRC), but can also formed as sole proprietorships, corporations, and disregarded entities for tax purposes.  There are many advantages and disadvantages to using an LLC.

Unlike general partners, whose personal assets are at risk for claims against the partnership, LLC members are generally only at risk for their investment in the LLC.  An LLC is nevertheless allowed pass-through taxation, avoiding double tax on income that is present in corporations.

LLP-Limited Liability Partnership

Similar to LLC’s, LLP’s are organized under state law and offer a degree of liability protection for individual partners.  The administrative burdens of converting an existing partnership to an LLP or adopting LLP status for a professional practice are minimal in comparison to converting to a or forming an LLC.

LLP’s Similar to LLC’s

• Both are granted limited liability status under state statutes.
• Both are easy to organize (versus corporation formation).
• Both are treated as partnerships for federal tax purposes if they do not elect to be treated as corporations by filing Form 8832.
• Both are relatively new forms of business entities compared to general partnerships, limited partnerships and corporations.

Contact our US Tax Firm in Vancouver Canada

Our firm specializes in preparing US taxes for our American clients across the border in Canada. Call us at (604) 281-3318 and let us help you with your business accounting needs.