One of the most critical decisions entrepreneurs make when starting or restructuring a business is choosing the right entity type. This choice directly impacts how the business is taxed, the level of administrative complexity and regulatory compliance obligations. While legal liability considerations also matter, we will focus on tax implications. For liability advice, consult a legal professional.

Whether launching a new venture or reassessing your current structure, understanding how each entity is taxed can help you make strategic and compliant decisions. Here’s a brief overview of five entities.

1. Sole proprietorship: Simple with full responsibility

A sole proprietorship is the easiest structure to set up. It’s owned and operated by one person and requires minimal administrative effort. Here are the main features:

• Taxation. Income and losses are reported on the owner’s personal tax return on Schedule C of Form 1040. Income is subject to 15.3% federal self-employment tax, and the business itself isn’t taxed separately. The owner may also qualify for a Qualified Business Income (QBI) deduction, potentially reducing the effective tax rate.
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• Compliance. Aside from obtaining necessary licenses or a business name registration, there’s little required paperwork. However, the owner is personally liable for all business debts and legal obligations.
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2. S Corporation: Pass-through entity with payroll considerations

An S Corp is a tax designation offering pass-through taxation benefits while imposing stricter rules. Here are the highlights:

• Taxation. S Corps don’t pay income tax at the entity level. Instead, profits or losses are passed through to shareholders via Schedule K-1 and reported on individual returns. A key tax benefit is that shareholders who are employees receive a salary (subject to payroll tax), while additional profit distributions aren’t subject to self-employment tax. However, the salary must be reasonable. The business is eligible for QBI deductions.
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• Compliance. To qualify, S corps must have 100 or fewer shareholders, all U.S. citizens or residents, and only one class of stock. They must file Form 2553, issue annual Schedule K-1s and follow corporate formalities like shareholder meetings and recordkeeping. An informational return (Form 1120-S) is also required.
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3. Partnership: Collaborative ownership with pass-through taxation

A partnership involves two or more individuals jointly operating a business. Common types include general partnerships, limited partnerships, and limited liability partnerships (LLPs). Here’s what makes it unique:

• Taxation. Partnerships are pass-through entities. The business files Form 1065 (an informational return), and income or loss is distributed to partners on Schedule K-1. Partners report this on their personal returns. General partners must pay self-employment tax, while limited partners usually don’t. The business is eligible for QBI deductions.
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• Compliance. Partnerships require a detailed partnership agreement, coordinated recordkeeping and clear profit-sharing arrangements. While more complex than a sole proprietorship, partnerships offer flexibility for growing businesses.
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4. Limited liability company: Flexible and customizable

An LLC merges elements of corporations and partnerships, offering owners called members both operational flexibility and liability protection.

• Taxation. By default, a single-member LLC is taxed like a sole proprietorship, and a multimember LLC like a partnership. However, LLCs may elect to be taxed as a C or S Corp by filing Form 8832 or Form 2553. This gives owners control over their tax strategies. LLCs that don’t elect C Corp status are eligible for QBI deductions.
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• Compliance. LLCs require articles of organization and often must have an operating agreement. Though not as complex as corporations, they still generally face state-specific compliance requirements and annual filings.
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5. C Corporation: Double taxation with scalability

A C Corp is a distinct legal entity offering the most liability protection and growth potential through stock issuance. Here are its features:

• Taxation. C corps face double taxation the business pays taxes on earnings (currently at a 21% federal rate), and shareholders pay taxes again on dividends. However, C Corps can offer deductible benefits (for example, health insurance, retirement plans) and retain earnings without immediately distributing profits. C corps aren’t eligible for QBI deductions.
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• Compliance: These entities require the most administrative upkeep, including bylaws, annual meetings, board minutes, and extensive state and federal reporting. C corps are ideal for companies seeking venture capital or IPOs.
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After hiring employees

Regardless of entity type, adding employees increases compliance requirements. Businesses must obtain an Employer Identification Number (EIN) and withhold federal and state payroll taxes. Employers also take on added responsibilities related to benefits, tax deposits, and employment law compliance.

What’s right for you?

There’s no universal answer to which entity is best. The right choice depends on your growth goals, ownership structure and financial needs. Tax optimization is a critical factor. For example, an LLC electing S Corp status may help minimize self-employment taxes if set up properly. Contact us. We can coordinate with your attorney to ensure your structure supports both your tax strategies and business goals.

© 2025

 

A bill in Congress dubbed The One, Big, Beautiful Bill could significantly reshape several federal business tax breaks. While the proposed legislation is still under debate, it’s already sparking attention across business communities.

Here’s a look at the current rules and proposed changes for five key tax provisions and what they could mean for your business.

1. Bonus depreciation

Current rules: Businesses can deduct 40% of the cost of eligible new and used equipment in the year it’s placed in service. (In 2026, this will drop to 20%, eventually phasing out entirely by 2027.)

Proposed change: The bill would restore 100% bonus depreciation retroactively for property acquired after January 19, 2025, and extend it through 2029. This would be a major win for businesses looking to invest in equipment, machinery and certain software.

Why it matters: A full deduction in the year of purchase would allow for faster depreciation, freeing up cash flow. This could be especially beneficial for capital-intensive industries.

2. Section 179 expensing

Current rules: Businesses can “expense” up to $1.25 million of qualified asset purchases in 2025, with a phaseout beginning at $3.13 million. Under Section 179, businesses can deduct the cost of qualifying equipment or software in the year it’s placed in service, rather than depreciating it over several years.

Proposed change: The bill would increase the expensing limit to $2.5 million and the phaseout threshold to $4 million for property placed into service after 2024. The amounts would be adjusted annually for inflation.

Why it matters: This provision could help smaller businesses deduct more of the cost (or the entire cost) of qualifying purchases without dealing with depreciation schedules. Larger thresholds would mean more flexibility for expanding operations.

3. Qualified business income (QBI) deduction

Current rules: Created by the Tax Cuts and Jobs Act (TCJA), the QBI deduction is currently available through 2025 to owners of pass-through entities. These include S corporations, partnerships, limited liability companies, sole proprietors and most self-employed individuals. QBI is defined as the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. The deduction generally equals 20% of QBI, not to exceed 20% of taxable income minus net capital gain. But it’s subject to additional limits that can reduce or eliminate the tax benefit.

Proposed change: Under the bill, the QBI tax break would be made permanent. Additionally, the deduction amount would increase to 23% for tax years beginning after 2025.

Why it matters: The increased deduction rate and permanent extension would lead to substantial tax savings for eligible pass-through entities. If the deduction is made permanent and adjusted for inflation, businesses could engage in more effective long-term tax planning.

4. Research and experimental (R&E) expensing

Current rules: Under the TCJA, businesses must capitalize and amortize domestic R&E costs over five years (15 years for foreign research).

Proposed change: The bill would reinstate a deduction available to businesses that conduct R&E. Specifically, the deduction would apply to R&E costs incurred after 2024 and before 2030. Providing added flexibility, the bill would allow taxpayers to elect whether to deduct or amortize the expenditures. (The requirement under current law to amortize such expenses would be suspended while the deduction is available.)

Why it matters: Many businesses especially startups and tech firms depend heavily on research investments. Restoring current expensing could ease tax burdens and encourage innovation.

5. Increase in information reporting amounts

Current rules: The annual reporting threshold for payments made by a business for services performed by an independent contractor is generally $600. That means businesses must send a Form 1099-NEC to contractors they pay more than $600 by January 31 of the following year.

Proposed change: The bill would generally increase the threshold to $2,000 in payments during the year and adjust it for inflation. This provision would apply to payments made after December 31, 2024. (The bill would also make changes to the rules for Form 1099-K issued by third-party settlement organizations.)

Why it matters: This proposal would reduce the administrative burdens on businesses. Fewer 1099-NECs would need to be prepared and filed, especially for small engagements. If the provision is enacted, contractors would receive fewer 1099-NECs. Income below $2,000 annually would still have to be reported to the IRS, so contractors may have to be more diligent in tracking income.

More to consider

These are just five of the significant changes being proposed. The One, Big, Beautiful Bill also proposes changes to the business interest expense deduction and some employee benefits. It would eliminate federal income tax on eligible tips and overtime and make many more changes.

If enacted, the bill could deliver immediate and long-term tax relief to certain business owners. It narrowly passed in the U.S. House of Representatives and is currently being considered in the Senate. Changes are likely to be made there, at which point the new version would have to be passed again by the House before being sent to President Trump to be signed into law. The current uncertainty means business owners shouldn’t act prematurely.

While these changes may sound beneficial, their complexity and the possibility of retroactive provisions make professional guidance essential. Contact us to discuss how to proceed in your situation.

© 2025

 

Payroll fraud schemes can be costly and for small businesses, devastating. The Association of Certified Fraud Examiners (ACFE) has found that the median loss from payroll fraud schemes is $50,000. However, some long-term payroll frauds, particularly when perpetrated by upper management, have produced losses in the millions of dollars. Can your company afford that? Probably not.

Payroll fraud incidents can also result in bad publicity, weakened employee morale and, potentially, an IRS investigation. It’s critical that your business take steps to protect its payroll function.

Illegal self-enrichment

There are several ways for fraud perpetrators to illegally manipulate payroll to enrich themselves. For example, cybercriminals often target payroll functions. They might use phishing emails to trick your workers into providing sensitive information, such as bank login credentials. This becomes a form of payroll fraud if they divert payroll direct deposits to accounts they control. Criminals might also target you and accounting department managers by sending fake emails from “employees” requesting changes to their direct deposit instructions.

Also watch out for occupational payroll fraud. In the absence of appropriate internal controls, crooked accounting staffers could add invented “ghost” employees to the payroll. The wages of those ghost employees might then be deposited in accounts controlled by the fraudsters.

And any employee who files for expense reimbursement may inflate expenses, submit multiple receipts for the same expense or claim fictitious expenses. This is considered payroll fraud because reimbursements are often added to paychecks. By the same token, workers eligible for overtime who artificially inflate their work hours are also generally considered payroll fraud perpetrators.

Effective internal controls

To prevent payroll fraud and uncover it quickly if it occurs implement and enforce strong internal controls. For instance, require two or more employees to make payroll changes, such as increasing pay rates or adding or removing employees. Payroll staffers should be alert for excessive or unusual pay rates, hours or expenses. And if they receive a request to change an employee’s direct deposit information, they should verify the request with the worker before proceeding.

For their part, department managers must closely monitor employee expense reimbursement requests. They should ask employees to explain discrepancies, such as totals that don’t add up or expense claims that lack receipts.

Other effective controls include:

Audits. Regularly conduct payroll audits to detect anomalies. Also audit automatic payroll withdrawals to confirm proper transfers are made.

Training. Educate employees about payroll schemes, phishing attacks and the importance of not sharing sensitive information.

Confidential hotlines. Offer an anonymous hotline or web portal to employees, customers and vendors to report fraud suspicions. Be sure to investigate every report.

Tax responsibilities

Finally, a scheme that’s most often perpetrated by business owners and executives is deliberately failing to pay required payroll tax. Ensure that upper management and payroll department employees understand their tax responsibilities and that no one individual has the ability to divert funds intended for payroll tax to a personal account. Contact us for more information and assistance with internal controls.

© 2026

Admit it, you’ve Googled your own name once or twice. The question is, how frequently do you Google your company’s name? Regularly checking online information about your business can help you manage any negative accounts and dispute false or misleading data.

After all, many investors, lenders, customers, vendors and business partners will search your company’s online reputation before deciding to work with you. This may seem unfair, but you’re generally free to screen other businesses for “adverse media” — including allegations of unethical or illegal activities — and you should. Performing such due diligence is critical to protecting your company from nonpayers, fraud perpetrators and those bent on frivolous litigation.

Formal policy

Given the vast amount of data available online and the potential legal risks, conducting adverse media screening requires a careful, methodical approach. Start by developing a formal policy to guide you.

The policy should assist you in finding and using adverse media without triggering legal exposure. Among other things, it should identify sources you intend to access, clarify off-limit actions and detail how you plan to use any negative information you’ve found. Because laws governing privacy, defamation, and discrimination can vary by jurisdiction and situation, ask your attorney to review the policy before rolling it out.

Reliable data

Adverse media screening can cover a broad range of activities. So you should create categories to consistently classify potential red flags. Examples might include:

• -Civil proceedings,
• -Criminal misconduct,
• -Environmental violations,
• -Regulatory scrutiny, and
• -Financial crimes.
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Classifying data by category can help focus your due diligence efforts and make it easier to identify the most reliable sources for each.

Keep in mind that to generate traffic, some online outlets do little to verify the accuracy of their stories — and may even knowingly post disinformation. For example, many social media platforms allow their users to post opinions that may be factually incorrect. Rely only on information providers with high ethical standards and established histories of accurate reporting. And for any accusation, seek corroboration from multiple sources.

AI tools

You don’t have to conduct adverse media screening manually. Rather than asking employees to research and gather information, some businesses use software that relies on artificial intelligence (AI) to scan the internet. AI can analyze large volumes of data far more efficiently than manual methods.

However, buying such tools can require a substantial investment and may not be practical for smaller businesses. The scope of screening should be proportional to the size of your business, the nature of the relationships you’re evaluating and the level of risk involved.

Multistep process

However extensive your adverse media screening, remember that it’s only one part of a broader due diligence process. If you uncover something negative, ask your potential business partner to explain it. There may be an innocent or at least, more nuanced explanation. Also ask for references and follow up on them.

Adverse media screening can involve legal, operational and cost considerations, so work with your legal and financial advisors to determine when screening is warranted, how extensive it should be and how to control related costs. Contact us for more information.

© 2026

 

 

As a small to midsize business grows, demands on its time, talent and resources inevitably expand right along with it. Many business owners reach a point where continuing to do everything in-house — or even themselves — begins to slow progress or expose the company to unnecessary risk. Have you reached this point yet? If so, or even if you’re getting close, outsourcing could be a smart move.

Common candidates

Many business activities can be outsourced. The key is identifying functions that, if handled by an external provider, would improve efficiency, strengthen compliance, and give you and your team more time to focus on revenue-generating work. Here are some common candidates:

Accounting and financial reporting. A reputable provider can manage your books, collect payments, pay invoices and keep accounting technology up to date. It should also be able to prepare financial statements that meet the standards expected by lenders, investors and other outside parties.

Customer service. This may seem an unlikely candidate because you might believe that someone must work for your business to truly represent it. But that’s not necessarily true. Internal customer service departments often have high turnover rates, which drives up costs and reduces service quality. Outsourcing to a provider with a more stable, well-trained team can improve both customer satisfaction and operational consistency.

Information technology (IT). Bringing in an outside firm or consultant to manage your IT needs can provide significant benefits. For starters, you’ll be able to better focus on your mission without the constant distraction of changing technology. Also, a provider will stay current on the best hardware and software for your business, as well as help you securely access, store and protect your data.

Payroll and human resources (HR). These functions are governed by complex regulations that change frequently — as does the necessary software. A qualified vendor can help your business comply with current legal requirements while giving you and your employees a better, more secure platform for accessing payroll and HR information.

Downsides to watch out for

Naturally, outsourcing comes with potential downsides. You’ll need to spend time and resources researching and vetting providers. Then each engagement will involve substantial ongoing expenses.

You’ll also have to place considerable trust in providers — especially in today’s environment, where data breaches are common and cybersecurity is critical. Finally, even a solid outsourcing arrangement requires ongoing communication and management to maintain a productive relationship.

Not a one-size-fits-all solution

Every business owner must carefully consider when to outsource, which services are worth the money and how to measure return on investment over time. If you’d like help evaluating your options or better understanding the financial and tax implications of outsourcing, contact us.

© 2025

 

If your business sponsors a 401(k) plan for employees, you know it’s a lot to manage. But manage it you must: Under the Employee Retirement Income Security Act (ERISA), you have a fiduciary duty to act prudently and solely in participants’ interests.

Once a plan is launched and operational, it may seem to run itself. However, problems can arise if you fail to actively oversee administration — even when a third-party administrator is involved. With 2025 winding down and a new year on the horizon, now may be a good time to review your plan’s administrative processes and fiduciary procedures.

Investment selection and management

Study your plan’s investment choices to determine whether the selections available to participants are appropriate. Does the lineup offer options along the risk-and-return spectrum for workers of all ages? Are any premixed funds, which are based on age or expected retirement date, appropriate for your employee population?

If the plan includes a default investment for participants who haven’t directed their investment contributions, look into whether that option remains appropriate. In the event your plan doesn’t have a written investment policy or doesn’t use an independent investment manager to help select and monitor investments, consider incorporating these risk management measures.

Should you decide to engage an investment manager, however, first implement formally documented procedures for selecting and monitoring this advisor. Consult an attorney for assistance. If you’re already using an investment manager, reread the engagement documentation to make sure it’s still accurate and comprehensive.

Fee structure

The fee structures of 401(k) plans sometimes draw media scrutiny and often aggravate employees who closely follow their accounts. Calculate the amount of current participant fees associated with your plan’s investments and benchmark them against industry standards.

In addition, examine the plan’s administrative, recordkeeping and advisory fees to understand how these costs are allocated between the business and participants. Establish whether any revenue-sharing arrangements are in place and, if so, assess their transparency and oversight.

It’s also a good idea to compare your total plan costs to those of similarly sized plans. This way, you can determine whether your overall fee structure remains competitive and reasonable under current market conditions.

Third-party administrator

Even if your third-party administrator handles day-to-day tasks, it’s important to periodically verify that their internal controls, cybersecurity practices and data-handling procedures meet current standards. Confirm that the administrator:

• Maintains proper documentation,
• Follows timely and accurate reporting practices, and
• Provides adequate support when compliance questions arise.

A proactive review of their service model can help ensure your business isn’t unknowingly exposed to risks from operational errors, data breaches or outdated administrative practices.

Overall compliance

Some critical compliance questions to consider are:

• Do your plan’s administrative procedures comply with current regulations?
• If you intend it to be a participant-directed individual account plan, does it follow all the provisions of ERISA Section 404(c)?
• Have there been any major changes to other 401(k) regulations recently?

Along with testing the current state of your plan against ERISA requirements, evaluate whether your operational practices align with your plan document — an area where many sponsors stumble. Double-check key items such as contribution timelines, eligibility determinations, vesting schedules and loan administration. Verify that procedures precisely follow the terms of your plan document.

Conducting periodic internal audits can help identify inconsistencies and operational errors before they become costly compliance failures. You might even discover fraudulent activities.

Great power, great responsibility

A 401(k) plan is a highly valuable benefit that can attract job candidates, retain employees and demonstrate your business’s commitment to participants’ financial well-being. However, with this great power comes great responsibility on your part as plan sponsor.

If your leadership team and key staff haven’t reviewed your company’s oversight practices recently, year end may be an ideal time to take stock. We can help you identify plan costs and fees, spot potential compliance gaps, and tighten internal controls.

© 2025