Qupid Accountants & Qdvisors are tax and business consultants, not just number crunchers. Anyone can balance a checkbook. Anyone can print a paycheck. Anyone can put the right number in the right blanks. But we take a consultative approach to your corporate and partnership tax preparation. You can always find someone to do it for less- of course. However consider the solid back-end support which you will get with Qupid Accountants & Qdvisors that other tax preparation companies or small business CPAs might not provide.
Basic Small Business Tax Returns
Before we get too far along, there are some basics to get out of the way. You might already know all this stuff but there are others who don’t so please bear with us as we run through some small business tax preparation scenarios-
| Entity | Tax Return | Form |
|---|---|---|
| Trade Names, DBAs Sole Props | Schedule C, Individual Tax Return. | 1040 |
| Single Member LLC | Schedule C, Individual Tax Return. | 1040 |
| Multi-Member LLC Husband and Wife | Community Property State– Schedule C, Jointly Filed Individual Tax Return. Common Law State– Partnership Tax Return. The Revenue Code is clear on this, yet most tax professionals and attorneys mess it up. It’s hard to enforce. |
1040 1065 |
| Multi-Member LLC | Partnership Tax Return. | 1065 |
| C Corp or PC | C Corporation Tax Return | 1120 |
| S Corp Election | S corporations do not exist. Rather an underlying entity, such as an LLC or C Corp, elects to be taxed as an S Corp. Therefore a corporation tax return is filed. | 1120S |
So, next we’ll cover the small business owner who is beyond the sole proprietorship or disregarded single member LLC and needs a partnership (Form 1065) or corporate (Forms 1120 or 1120S) tax return.
Partnership Tax Preparation (Form 1065)
If you have more than one member (owner) in your limited liability company (LLC – LLP – PLLC – LP) then you are now a fancy multi-member company tax as a partnership. Yes, this includes your spouse unless you are in a community property state (WA, ID, CA, NV, AZ, TX, LA and WI). Partnership tax returns are seemingly either very straightforward or quite complex… sure, there are some middle of the pack ones, but in our experience this is a good generalization.
Straightforward
You and your childhood best friend own a rental property => Straightforward.
You and your spouse operate a boutique law firm => Straightforward.
Complex
You and your childhood best friend own several rentals in various states => getting complex…
You have a multi-entity arrangement where the partnership pays out a fee for service to other S corporations owns by the partners of a law firm => complex, and time-consuming.
You have 10 or more other partners with various arrangements, revenue splits, member interests, allocations and other craziness => much more complex.
We have attempted to take time expectations and assign a numeric fee structure. This is an impossible task. Kindly keep in mind that crazy things like partnership account adjustments, adding or removing partners, manual capital account reconciliations, rebuilding partner basis information, asset dispositions (sale of a rental or equipment), backup withholdings calculations, entity shutdowns, odd-looking balance sheet entries, several moving parts, etc. can all factor in. Let’s not forget the equity partner versus economic partner arrangements and the mental gymnastics that might ensue from those types of deals.
The best way to solve the “what’s my fee gonna be?” conundrum is to provide last year’s tax returns and current financial data for review and quotation.
Corporation Tax Return Preparation (Form 1120 and 1120S)
Corporate tax return preparation can be more straightforward than partnership tax returns. The rules of engagement are more rigid. Partnerships are virtually limitless when it comes to who gets what, splits, allocations, etc. which is why they are an ideal entity arrangement when there are multiple parties with wildly different interests, participation and objectives.
We mentioned that corporation tax return preparation can be more straightforward than partnership tax returns. But! For our foreign owners of C corporations, additional time is necessary for possible back-up withholdings, Form 5472, Form 8233, W-8 BEN and tax treaties, among other issues that need special handling, and this gets tricky really fast.
Similar to partnerships, we offer discounts for several shareholders since after the first handful, the incremental time is low. And! There’s more… shareholder allocations of net operating income and any separate items (such as Section 179 depreciation, capital gains, etc.) is much more straightforward and the nutty calculations from exotic deal structures doesn’t exist. In contrast, partnerships and multi-member LLCs might be simple, or they might be very complicated from a deal structure and allocation perspective.
Composite Tax Returns
What the heck is a composite tax return? According to The Tax Adviser, “a composite return is an individual return filed by the passthrough entity that reports the state income of all the nonresident owners or, in some cases, the electing members, as one group. Filing the composite return can also relieve the passthrough entity of the withholding requirement that many states impose on passthrough entities with nonresident owners. The state gets its money while the owners’ personal filing obligations are reduced.”
Sounds cool, right? Well… maybe! There are situations where this makes sense, and there are clearly situations where it does not. When it works, it works really well.
If you are operating a pass-thru entity such as a partnership filing Form 1065 or an S corporation filing Form 1120S, and you have multiple owners in multiple states, we need to have a convo!