Or are we better off not taking out additional debt?

Answer – Yes, you can tap the Line of Credit to pay down vendors at year-end vendor as this will create additional permitted deductions for 2009.

My view is that this is not a “bad” use of debt. This recommendation assumes your company will be able to pay down the advance with the significant accounts receivable expected within the next 30 to 45 days. These amounts should be in excess of your daily operating needs.

Answer: Generally you only need to furnish 1099s to independent contractors who are individuals (SSN) or LLCs taxed as either sole proprietors or partnerships (EIN).  Currently only corporations are exempt from 1099-MISC requirements.

The preparation task is relatively simple and made easier if you require your contractors to submit Form W-9 (http://www.irs.gov/pub/irs-pdf/fw9.pdf?portlet=3) at the time of payment or with signed contract.

In order to obtain appropriate annual forms I suggest that you go the Internal Revenue Service located in the Federal Building here in Old Town Fort Collins on the corner of Howes and Olive.  You will need to ask for the following forms:

• Form 1096 (transmittal)
• Form 1099-MISC (carbonless forms)

You will then send the “red copies” to the Internal Revenue Service (Kansas City, MO 64999) while Copy B is mailed to the recipients.

Make copies for your records.

For me good fit has three important criteria:

Size: Generally like-sized businesses seek a like-sized accountant. A business with a couple dozen employees will look for a CPA with a dozen or more employees. Generally, a larger CPA firms understands both the needs and nuances of small business. This strategy also preps for your growth as the larger firm can usually provide for future accounting and tax service needs.

Fees/Services: Sure, fees and services play a role in any decision. But in many instances the range in fees charged by different practices is relatively small and may not be that material. In addition, it is worth exploring how service issues are handled during each tax season given the compressed filing period and complexity of the tax code.

Intangibles: A little tougher to assess but just as important as the first two points.
• Will the CPA coordinate tax strategies between your separate business and individual tax returns?

• Will the CPA routinely consider appropriate legal and tax structures for your business venture(s)?

• Is the CPA able to answer a myriad of operational questions or suggest other knowledgeable experts?

• Is the CPA staying current with Federal, State, and local laws which may affect your business?

In this hypothetical instance, say you had not withdrawn any funds from your LLC and had earned approximately $20,000 during year-to-date 2009, you could save roughly $2,400 on your 2009 Form 1040 (individual income tax return) by electing S Corporation status for your LLC.

A sole proprietor (Form 1040, Schedule C) is subject to the 15.3% self-employment tax regardless if the owner pulls the money out of the business account.

On the other hand, S Corporation owners pay self-employment taxes when they actually pull out money (profit) from the Company. And then a decision is made as to how much to subject to income tax when computing owner wages v. owner draw. A conservative allocation is 50/50 while a more aggressive allocation is 25/75.

Therefore, while one might enjoy considerable tax savings in this instance ($2,400); it’s possible you may pay as much as $1,800 the next year in payroll taxes (Federal, FUTA, SUTA) if you were to allocate $10,000 to wages.

Plus don’t forget the preparation fees to produce quarterly returns and W-2s.

Therefore, an S Corporation election may not be in one’s best interest because it’s predicated on your business activity and also your other personal income and deductions.

Of course, sometimes it’s EASY – a no-brainer decision; other times a much more difficult decision and involves the proverbial “crystal ball”.

Without proper planning, a transition year can cost more than usual if there are pre-existing circumstances that need attention.

For example, prior year-end accounting discrepancies or shareholder basis issues can incur one-time only costs.

Other items that can make a transition year more expensive would be:

• numerous depreciable assets
• several business or rental ventures
• tax items that are unusual or isolated

As a courtesy to new clients, I will typically ‘absorb’ the additional hours it takes me to complete transition year details for them.

Furthermore, while never a certainty, subsequent year returns typically take just about 2 hours each or $300 since all the “heavy lifting” was performed the year before.

So if you are considering a change, give me a call. We can look at your advantages in making the move and also develop a clear sense of any transition issues.