Businesses should stay grounded when using cloud computing

Tax problems can happen to even the most organized small business owners. A cash flow crunch, an unexpected tax notice, a missed filing deadline or a payroll tax oversight can be stressful — especially when penalties and interest begin to add up. Fortunately, businesses can get back on track by addressing tax issues promptly and strategically. What should I do if I receive a tax notice? If you or your business receives a tax notice from the IRS or a state agency, don’t ignore it. Start by reviewing the notice carefully. It may relate to: A balance due, A missing tax return, A proposed tax adjustment, A payroll tax deposit issue, or A request for documentation. Be aware that tax notices typically include response deadlines — and missing them can limit your options and lead to additional penalties and interest. Tax authorities may eventually pursue collection measures (such as liens or levies) on unpaid amounts. A lien is a legal claim against property, which can affect your ability to secure credit or complete financial transactions. A levy allows the tax agency to seize assets to satisfy the debt. Before making a payment or sending a response, confirm that the notice is accurate. We can help you compare the notice with your business records, gather supporting documentation and prepare an appropriate response. How far back can I file unfiled tax returns? If you have unfiled tax returns, it’s important to address them as soon as possible. In many cases, you’ll need to file past-due returns before you can qualify for certain resolution options, such as a payment plan or settlement program. How far back you need to file depends on your circumstances, the type of return involved and the tax agency’s requirements. There generally isn’t a simple time limit that makes an unfiled return “go away.” For federal income taxes, the statute of limitations for the IRS to assess additional tax for a particular tax year generally starts only after a valid return is filed. It’s typically three years, but it’s six years if you understate your gross income by more than 25%. If you fail to file a return (or you file a false or fraudulent return), the IRS has an unlimited amount of time to assess tax for the tax year. So filing past-due returns can help reduce the risk of penalties, interest and collection activity — as well as the risk that the taxing authority could create a “substitute for return” for you. (This is generally undesirable because the return likely will include your income but not all the deductions, credits and other tax breaks you may be eligible for.) If you’re owed a refund, filing promptly is especially important because you may lose the ability to receive an otherwise valid refund if you wait too long. Federal income tax refunds and credits generally must be claimed by the later of three years from the date you filed the return or two years from the date you paid the tax. What are my options if I owe back taxes? Some business owners who owe tax can’t immediately pay the full balance due. If you owe back taxes, you may have several options depending on the amount owed, the type of tax involved and your financial situation. Ways to manage tax debt may include: Making a payment, Asking for a temporary delay in collection due to financial hardship, Participating in a settlement program (see below), and Setting up an installment agreement or payment plan. An installment agreement or payment plan may give qualifying taxpayers extra breathing room to pay the balance over time. However, you must generally stay current with future tax filings and payments. Falling behind again can cause you to default on your payment plan and potentially lead to additional collection actions. Can I settle my tax debt for less than the full amount owed? Some tax agencies offer settlement programs that allow eligible taxpayers to settle tax debt for less than the full amount owed. For federal tax debt, the offer in compromise (OIC) program may be available in limited circumstances. However, an OIC isn’t available to all taxpayers and may not be the best option in every situation. The IRS reviews income, expenses, asset equity and ability to pay when determining whether to approve an OIC request. Before applying, you’ll generally need to have all required tax returns filed. You also must be current with ongoing tax obligations, including estimated tax payments and federal tax deposits. Can tax penalties be reduced or removed? Penalty relief may be available in certain circumstances. Depending on the penalty and the facts involved, you may qualify for administrative relief, such as an automatic exemption from penalty, first-time penalty abatement or relief based on reasonable cause. Reasonable cause may apply when you made a good-faith effort to meet your tax obligations but were unable to do so because of circumstances beyond your control, such as: A serious illness, A death in your immediate family, A natural disaster, or Loss of records. Penalty abatement isn’t automatic. You must follow the instructions in the notice. You might need to call the IRS or submit a written request with a clear explanation and supporting documentation. Even if penalties are reduced, interest may still apply, so it’s advisable to respond as soon as possible. Why are payroll tax-withholding problems so serious? Payroll tax-withholding problems are among the most urgent tax issues small business owners can face. If you have employees on your payroll, you’re responsible for withholding federal income tax, state income tax (if applicable), Social Security tax and Medicare tax from their wages and remitting those amounts to the government. Tax agencies closely monitor these tax remittances because you’re withholding money on behalf of your employees and holding it in trust until you deposit it with the taxing authority. In some cases, business owners or other responsible individuals may be held personally liable for unremitted taxes through the Trust Fund Recovery Penalty. The penalty can apply to individuals who are responsible for collecting, accounting for or depositing the taxes and who willfully fail to do so. If your business falls behind on these tax deposits, professional guidance is critical. How can I avoid future tax problems? For small business owners, preventing future tax issues starts with strong accounting systems, accurate bookkeeping and timely tax filings. You should also engage in proactive tax planning by reviewing financial reports regularly, setting aside funds for taxes, and making estimated income tax payments and depositing withheld taxes by the required deadlines. If you’re facing tax resolution issues, contact us. We can help you understand your options, communicate with tax authorities and create a plan to keep your business moving full speed ahead. © 2026 

Section 530A accounts, also known as “Trump accounts,” are available for contributions as of July 4, 2026. Created by last year’s One Big Beautiful Bill Act, they’re custodial, tax-advantaged accounts opened by a parent or guardian for an eligible child under age 18. In late June, the IRS issued Revenue Procedure 2026-25, which, among other things, allows qualifying 530A account contributions to be treated as completed gifts rather than gifts of a future interest. The upside is that your contributions can qualify for the gift tax annual exclusion and you may not have to file a gift tax return (Form 709) — but only if certain requirements are met. How do 530A accounts work? A 530A account can be set up for anyone who’ll be under age 18 at the end of the tax year and who has a Social Security number. Annual contributions of up to $5,000 can be made until the year the beneficiary turns age 18. In addition, U.S. citizen children born from Jan. 1, 2025, through Dec. 31, 2028, can potentially qualify for an initial $1,000 government-funded deposit. 530A account contributions aren’t deductible, but earnings grow tax-deferred as long as they’re in the account. The account generally must be invested in exchange-traded funds or mutual funds that track the return of a qualified index and meet certain other requirements. Withdrawals generally can’t be taken until the child turns age 18, when the account becomes a traditional IRA, subject to traditional IRA rules. Distributions will generally be at least partially taxable, and IRA early withdrawal penalties could also apply. What’s in the IRS guidance? Under safe harbor rules included in the June IRS guidance, 530A account contributions will be eligible for the gift tax annual exclusion and you won’t be required to file a gift tax return if all these requirements are met: Your cash contributions to a 530A account for a beneficiary under age 18 are your only taxable gifts for the calendar year, The total amount of each beneficiary’s gift (including contributions to the 530A account) doesn’t exceed the gift tax annual exclusion amount ($19,000 per recipient for 2026) or your available lifetime gift and estate tax exemption ($15 million for 2026, less any exemption you’ve already used during your life), and A gift tax return for the year isn’t otherwise required to be filed by you. When these conditions are met, the IRS will generally treat the contributions as completed gifts rather than future interests in property. But if just one of the conditions isn’t met, your contributions will be treated as gifts of a future interest, which means they won’t be eligible for the annual exclusion and you must file a gift tax return for every account beneficiary who receives a contribution. The gifts can still be tax-free, but you’ll have to apply your lifetime gift tax exemption — and your generation-skipping transfer (GST) tax exemption if the GST tax also applies (generally when a gift is made to a grandchild or someone else two generations or more below you). Should you file a gift tax return? If you’re planning to contribute to your children’s or grandchildren’s 530A accounts, the new IRS rules can potentially ease the tax-filing burden next year. However, there are situations where it’s advantageous to file a gift tax return even if one isn’t required. And if your 530A account contributions are only part of your overall gifting program, you’ll likely still be required to file a gift tax return — and you’ll need to factor the tax consequences of the contributions into your planning. If you’re unsure whether you must (or should) file a gift tax return, or you need clarification on the recent IRS guidance on 530A accounts, contact us. © 2026 

Business owners today face no shortage of uncertainty. Persistent inflation, evolving trade policies, cybersecurity threats and ongoing geopolitical tensions have made planning challenging. Although it’s impossible to predict every disruption, you can better prepare by evaluating how your business would respond under adverse conditions. One proven approach is stress testing, which helps organizations identify vulnerabilities before they become costly problems. Some background Stress testing gained widespread attention in the banking industry following the 2008 financial crisis. Regulators continue to require large financial institutions to evaluate how they’d perform under severe economic scenarios. However, for most businesses, stress testing doesn’t need to be as complex as a bank regulatory model. Approach it as a practical planning exercise that uses realistic financial assumptions to answer questions such as: What would happen to operating cash flow if a major customer left, borrowing costs rose or a key supplier increased prices? By modeling the financial impact of potential disruptions, you can make more informed decisions and improve long-term planning. Identify major risks To launch your own stress-testing initiative, identify your business’s primary risk factors in the following categories: Operational. These affect the day-to-day functioning of your business and may include supply chain disruptions, technology failures, cyberattacks, natural disasters, employee shortages and human error. Financial. Risks related to cash flow, access to capital, interest rate fluctuations, fraud, customer credit issues and changes in borrowing costs all deserve attention. Compliance. Such risks stem from evolving tax laws, industry regulations, data privacy requirements, labor laws and other government mandates. Strategic. These relate to competitive pressures, changing customer preferences, market disruptions, technological innovation and broad economic shifts. As you evaluate each risk category, be specific. The more realistic your assumptions, the more valuable the exercise will likely be. Meet with your team Once you’ve identified the most significant risks, meet with your leadership team and trusted professional advisors to discuss each scenario. Consider not only the likelihood of each event but also its potential financial impact and your business’s ability to respond. The goal is to develop practical strategies to reduce exposure and improve resilience. For example, if your business operates in an area susceptible to natural disasters, a comprehensive disaster recovery and business continuity plan is essential. Other vulnerabilities may be less obvious. If your business depends heavily on a single executive with specialized knowledge, stress testing can highlight the importance of succession planning. Value of continuous improvement Risk management isn’t a one-time exercise. Economic conditions, customer behavior, technology development and regulatory requirements continue to evolve, creating new challenges and opportunities. So review your stress-testing program at least annually and update it whenever significant changes occur within your business, industry or in the broader marketplace. Although stress tests won’t eliminate uncertainty, they can help your business respond more confidently when unexpected events arise. We can help you analyze potential scenarios and develop reliable financial projections. Contact us to discuss how stress testing can strengthen your risk management strategy. © 2026 

Summer is a good time to see whether your income, deductions and investment activity are lining up as expected. Let’s take a look at a few areas that commonly provide tax-saving opportunities. Your tax bracket The legislation commonly known as the One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025, retained federal income tax rates ranging from 10% to 37%. For tax planning purposes, it’s important to look at your marginal rate, which is the rate that will apply to your next dollar of income (generally after any adjustments, deductions and exclusions have been applied). For single filers, the brackets above the 10% rate begin at the following income levels: 12% bracket: $12,401 22% bracket: $50,401 24% bracket: $105,701 32% bracket: $201,776 35% bracket: $256,226 37% bracket: $640,601 For head-of-household filers, the brackets begin at the same income levels as those for singles — except that the first two brackets above the 10% rate begin at the following income levels: 12% bracket: $17,701 22% bracket: $67,451 For married couples filing jointly, the brackets above the 10% rate begin at the following income levels: 12% bracket: $24,801 22% bracket: $100,801 24% bracket: $211,401 32% bracket: $403,551 35% bracket: $512,451 37% bracket: $768,701 For married taxpayers filing separately, the brackets begin at half the amount for joint filers. (They’re the same as those for singles except for the 37% bracket.) If you expect this year’s income to be near the threshold for a higher bracket, consider strategies for reducing your taxable income and staying out of that bracket. For example, you could accelerate some deductible expenses. But carefully consider how the OBBBA will impact your deductions this year. For instance, it kept the standard deduction at high levels, and itemizing deductions saves you taxes only if your total itemized deductions for the year exceed the standard deduction for your tax bracket. For 2026, the standard deduction is $16,100 for singles (and separate filers), $24,150 for heads of household and $32,200 for joint filers. The OBBBA also affects itemized deductions. For example, some deductions now offer greater potential benefits (such as the state and local tax deduction), while others are now more limited (such as the charitable deduction). In addition, the OBBBA created some new deductions that can be claimed whether or not you itemize. These include deductions for qualified tips and overtime, the “senior” deduction for taxpayers age 65 or older, and the deduction for qualified auto loan interest. Medical expenses If you expect to benefit from itemizing on your 2026 return, see whether you can benefit from accelerating deductible medical expenses into this year. You can deduct only medical expenses that exceed 7.5% of your adjusted gross income (AGI). AGI is your income from taxable sources after certain so-called “above-the-line” adjustments but before the standard deduction or itemized deductions and certain other deductions, such as the new OBBBA deductions noted earlier, are applied. Deductible medical expenses may include: Health insurance premiums, Long-term care insurance premiums, Medical and dental services and prescription drugs, and Mileage driven for health care purposes. If it’s looking like your deductible medical expenses will be close to exceeding the 7.5% of AGI floor, you may be able to control the timing of additional medical expenses so you can bunch them into 2026 and exceed the floor. If your expenses already exceed the floor, bunching additional medical expenses into 2026 can maximize your deduction. But if it looks like you won’t be itemizing for 2026 or your medical expenses will be far from exceeding 7.5% of your AGI this year, you may want to take the opposite approach: Bunch medical expenses into 2027. Of course, your and your family’s health is more important than tax savings. So don’t accelerate or delay medical services if it would be harmful health-wise. Also consider how the timing will affect what’s covered by health insurance, especially if you have a high deductible. Investment gains (and losses) The OBBBA didn’t change the long-term capital gains rates, so they remain at 0%, 15% and 20%. The long-term gains rate applies to gains on investments held more than one year. Short-term gains are subject to your ordinary-income tax rate, which will be substantially higher. However, be aware that the top long-term gains rate kicks in before the top ordinary-income tax rate. For singles, the long-term gains brackets above the 0% rate begin at the following income levels: 15% bracket: $49,451 20% bracket: $545,501 For heads of household, the brackets above the 0% rate begin at the following income levels: 15% bracket: $66,201 20% bracket: $579,601 For joint filers, the brackets above the 0% rate begin at the following income levels: 15% bracket: $98,901 20% bracket: $613,701 For separate filers, the brackets begin at half the amount for joint filers. If you’ve realized, or expect to realize, significant capital gains this year, consider selling some depreciated investments to generate losses you can use to offset those gains. It may be possible to repurchase those investments, so long as you wait at least 31 days to avoid the “wash sale” rule. You also may need to plan for the 3.8% net investment income tax (NIIT). It can affect taxpayers with modified AGI (MAGI) over $200,000 for singles and heads of household, and over $250,000 for joint filers (half that for separate filers). You may be able to lower your tax liability by reducing your MAGI, reducing net investment income or both. Don’t wait until year end Planning opportunities often become more limited as the end of the year approaches. Reviewing your tax picture now gives you more time to take steps to reduce or defer taxes. If you’d like help evaluating these or other midyear tax strategies, please contact us. © 2026 

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A single joint living trust with your spouse can simplify the management of shared assets, but separate trusts may offer enhanced asset protection and tax planning opportunities. Which option is right for your estate plan depends on a variety of factors, including your and your spouse’s combined assets, financial goals, family circumstances and applicable state law. Living trust benefits There are many benefits of including a living trust (also known as a “revocable” trust) in your estate plan. This trust type allows you to minimize probate expenses, keep your financial affairs private and provide for the management of your assets in the event you become incapacitated. Importantly, a living trust also offers flexibility: You’re free to amend the terms of the trust or even revoke it altogether at any time. A single joint trust If you’re comfortable with your spouse inheriting your combined assets (and vice versa), a joint trust can be a good choice because of its simplicity. It avoids the need to divide assets between two separate trusts, and funding the trust is a simple matter of transferring your combined assets into it. In addition, during your lifetimes, you and your spouse have equal control over the trust’s assets. This can make it easier to manage and conduct transactions involving the assets. But it can be a negative for spouses who aren’t comfortable sharing control of their combined assets. Separate trusts Not wanting to share control of assets is one reason to set up separate trusts. Another is asset protection. If shielding assets from creditors is a concern, separate trusts can offer greater protection. With a joint trust, if a creditor obtains a judgment against one spouse, all trust assets may be at risk. But a spouse’s separate trust is generally protected from the other spouse’s creditors. Also, when one spouse dies, his or her separate trust becomes irrevocable, making it more difficult for creditors of either spouse to reach the trust assets. Keep in mind that the degree of asset protection a trust provides depends on the type of debt involved, applicable state law and the existence of a prenuptial agreement. Don’t forget to consider taxes For most married couples today, federal gift and estate taxes aren’t a concern. This is because they enjoy a combined gift and estate tax exemption of $30 million in 2026 (adjusted annually for inflation ). However, if your family’s wealth exceeds the exemption amount, or if you live in a state where an estate or similar “death” tax kicks in at lower asset levels, separate trusts offer greater opportunities to avoid or minimize these taxes. For example, some states have exemption amounts as low as $1 million or $2 million. In these states, separate trusts can be used to maximize each spouse’s exemption amount and minimize exposure to state death taxes. It’s also important to consider income tax. As previously mentioned, when one spouse dies, his or her separate trust becomes irrevocable. That means filing tax returns for the trust each year and, to the extent trust income is accumulated in the trust, paying tax at significantly higher trust tax rates. A joint trust remains revocable after the first spouse’s death — it doesn’t become irrevocable until both spouses have died. In this case, income is taxed to the surviving spouse at his or her individual tax rate. Arriving at a decision There’s no one-size-fits-all answer when deciding between a joint living trust and separate trusts. What works well for one married couple may not be the best choice for another, especially as family dynamics, wealth and tax laws evolve over time. If you’re unsure whether having one or two trusts better fits your needs, we can help. Contact us today. © 2026 

Whether you’re launching a start-up, expanding into different markets, developing a new product or pursuing a business acquisition, attracting investors requires more than a good idea. Investors want to see a compelling opportunity supported by solid financials and a realistic growth plan. One of the most effective ways to communicate all of this is with a digital presentation known as a pitch deck. Here’s how to build yours. Short and sweet Most investors review dozens of investment opportunities each year. So your pitch deck should capture their attention quickly by explaining what your business does, why it matters and why now is the time to invest. Early in the presentation, lay out: Your business’s mission and long-term vision, The problem your business solves, Your unique value proposition, The amount of funding you’re seeking, and How investment will help achieve specific business objectives. Keep it brief, with no more than 10 to 12 slides. You can share additional financial schedules and technical documentation later in the process. Defining the opportunity An effective pitch deck clearly defines the market opportunity. Be sure to explain the solutions you’re offering by using straightforward language and avoiding unnecessary technical jargon. And describe your target market using credible research and realistic assumptions. Include information about market size, customer demographics, industry trends and expected growth. Next, discuss revenue generation. Describe your pricing strategy and business model, including whether you’ll pursue sales through subscriptions, direct sales, licensing or other channels. Talk about your marketing plans as well. Investors will want to know how you’ll build brand awareness and acquire and retain customers. Existing customer relationships, strategic partnerships, recurring revenue and a growing social media presence can strengthen your case. People and financials Investors often invest in people as much as ideas. Introduce your leadership team and explain why it’s qualified to execute your business plan. Highlight relevant industry experience and previous entrepreneurial success. If your management team has complementary skill sets, emphasize how those strengths work together. Financial information should reinforce your story rather than overwhelm it. Use charts and graphs to illustrate historical performance, revenue growth, profit margins and future projections. Forecasts should be ambitious but grounded in reasonable assumptions and current market conditions. Investors also appreciate evidence that your business is gaining momentum. If applicable, include key metrics such as customer growth, recurring revenue, retention rates, strategic partnerships, product milestones and other measurable achievements. Equally important is explaining how you intend to use the capital you’re raising. Break down how the funds will be allocated to, for example, hiring, expanding operations, developing products and purchasing equipment. Focus on substance Increasingly, entrepreneurs are using AI to develop pitch decks. AI-powered software can assist with design, organization and content suggestions. However, if you use AI, be sure to review all financial information and statistics to ensure accuracy and content to ensure personalization. Experienced investors can usually recognize generic or overly polished presentations that lack substance. Be sure to contact us for other pitch deck suggestions. We can help you develop reliable financial data that strengthens your overall investment presentation, making you more likely to get to “yes.” © 2026 

Last year, the new tax deduction for taxpayers 65 and older was sometimes referred to as “no tax on Social Security.” In actuality, this up-to-$6,000-per-individual deduction, also known as the “senior” deduction, is generally available whether or not someone receives Social Security benefits. (But other limits do apply, such as an income-based phaseout.) Of course, the senior deduction can help reduce taxes on Social Security benefits. However, some retirees are already exempt from tax on Social Security, while others may have to report benefits that far exceed their senior deduction. How much of your Social Security benefits must be reported as taxable income depends on your provisional income, your overall income and IRS thresholds. How much is your provisional income? The first step in calculating provisional income is subtracting your Social Security benefits from your adjusted gross income (AGI). AGI is your income from taxable sources after certain so-called “above-the-line” adjustments but before the standard deduction or itemized deductions and certain other deductions, such as the senior deduction, are applied. Examples of above-the-line adjustments include traditional IRA contributions, Health Savings Account contributions and student loan interest. Because many Social Security recipients have fewer of these adjustments (or none at all), their AGI is often close to (or even the same as) their total income from taxable sources. After your Social Security benefits have been subtracted from your AGI, the following are added to it: 50% of Social Security benefits, Any tax-free municipal bond interest income, Any tax-free interest on U.S. Savings Bonds used to pay college expenses, Any tax-free adoption assistance payments from your employer, Any deduction for student loan interest, and Any tax-free foreign earned income and housing allowances, and certain tax-free income from Puerto Rico or U.S. possessions. The result is your provisional income. Once you know your provisional income, you can see what portion, if any, of your Social Security benefits will be subject to income tax. Will all your benefits be tax-free? Generally, your Social Security benefits will be federal-income-tax-free if: Your provisional income is $32,000 or less and you file a joint return with your spouse, or Your provisional income is $25,000 or less and you don’t file jointly — unless you’re married and file separately from your spouse who lived with you at any time during the year (in which case, see “Will up to 85% of your benefits be taxable?” below). These thresholds went into effect in 1984 and have never been adjusted for inflation. As a result, the number of retirees subject to federal tax on some of their Social Security benefits has been increasing over the years. Also keep in mind that you might owe state income tax even if you don’t owe federal tax, depending on your state. Will up to 50% of your benefits be taxable? Generally, up to 50% of Social Security benefits must be reported as taxable income on Form 1040 if: Your provisional income is over $32,000 but not more than $44,000 and you file jointly, or Your provisional income is over $25,000 but not more than $34,000 and you don’t file a joint return (again — unless you’re married and file separately from your spouse who lived with you at any time during the year). In general, the taxable portion of Social Security benefits gradually increases as provisional income rises. So if your provisional income is near the bottom of the range, you may have to report only a small portion of your benefits as taxable income. If your provisional income is near the top, you may have to report close to 50%. However, the reportable percentage also is affected by the amount of your Social Security benefits relative to other income. Will up to 85% of your benefits be taxable? Generally, up to 85% of Social Security benefits must be reported as taxable income on Form 1040 if: Your provisional income is over $44,000 and you file jointly, or Your provisional income is over $34,000 and you don’t file a joint return (unless you file a separate return from your spouse who lived with you at any time during the year, in which case you must report up to 85% of your benefits if your provisional income is above $0). The exact percentage depends on the amount by which your provisional income exceeds the applicable threshold and the size of your Social Security benefits relative to other income. Project provisional income and plan If you have to report a portion of your Social Security benefits as taxable income, smart tax planning can potentially reduce or even eliminate the liability. We can help you accurately project your provisional income, assess your eligibility for the senior deduction and review your overall tax situation to identify strategies that make sense for you. © 2026 

Start-ups must choose a legal entity for their business activities. The type of entity you select affects how the business is taxed and who may be held personally liable for its debts and obligations, among other things. Two popular options — assuming you’re going into business with one or more other people — are S corporations and multimember LLCs treated as partnerships for tax purposes. Both are pass-through entities, meaning tax items pass through to the individual owners and are reported on their personal federal income tax returns. And both offer liability protection. But there are subtle differences to factor into your decision. Here’s a closer look at the pros and cons of each. Multimember LLCs A multimember LLC essentially combines the legal advantages of corporations with the tax benefits of partnerships. If you operate your business as an LLC, your personal assets are generally protected from exposure to entity-related liabilities under applicable state law. In addition, all LLC members can participate in management without losing their liability protection (unlike partners in a limited partnership). Members of this type of LLC are subject to the federal income tax rules for partners. That means your share of the LLC’s taxable income items, gains, losses, deductions and credits will pass through to you and be reported on your personal return. The LLC itself doesn’t owe federal income tax. In addition to paying income taxes on your share of the LLC’s income, you may owe self-employment tax on that income. This includes Social Security tax at a rate of 12.4% on the first $184,500 of self-employment income in 2026 and Medicare tax of 2.9% on all self-employment income. However, half of your self-employment tax is deductible on your return. It’s also important to note that this business structure isn’t available to all businesses. Certain types of professional practices may be prohibited from operating as LLCs under the laws of some states or applicable professional standards, such as state bar association rules. S corporations An S corporation is a special tax designation available to qualifying domestic corporations. Like a traditional C corporation, an S corporation shields its shareholders from personal liability for the corporation’s debts. At the same time, it provides many — though not all — of the tax benefits associated with partnerships. If you structure your start-up as an S corporation, your share of the business’s taxable income items, gains, losses, deductions and credits will pass through to you and be reported on your personal return. The entity itself doesn’t owe federal income tax. S corporations have one important advantage over LLCs treated as partnerships: Shareholder-employees aren’t required to pay self-employment tax on their shares of the profits, provided they receive “reasonable” compensation that’s subject to Social Security and Medicare taxes. However, there are some downsides to consider. Notably, some partnership tax rules that apply to multimember LLCs and their members are significantly more favorable than the rules that apply to S corporations and their shareholders. Here are some examples: LLC members receive additional tax basis for loss deduction purposes from entity-level liabilities, but S corporation shareholders receive additional tax basis only from loans they make to the corporation. This difference allows LLC members to deduct more losses. When an LLC member purchases an interest from another member, the tax basis of the new member’s share of LLC assets can be stepped up. This lowers the new member’s tax obligation when LLC assets are sold or converted to cash. LLCs and their members have greater flexibility to arrange tax-free transfers of assets (including cash) between themselves. In addition, LLCs can make disproportionate allocations of taxable income, losses and other tax items among their members. In contrast, S corporations must allocate all pass-through tax items among the shareholders strictly in proportion to their stock ownership percentages. Also, be aware that not all entities are eligible to make a Subchapter S election. S corporations must comply with strict requirements that limit the number and types of shareholders, prohibit complex capital structures, and impose other restrictions (such as transfers to ineligible shareholders). Make a tax-smart choice Choosing your business entity requires careful consideration. Taxes play a pivotal role in this decision. Electing S corporation status or forming an LLC that’s treated as a partnership for tax purposes can provide tax advantages, but only if you structure the entity correctly. Before making your decision, consult with us. We can work with you and your legal advisors to determine the optimal setup for your situation. © 2026