One of the best ways to separate business and personal financial interests is to have your business become incorporated. This step will immediately reduce personal liabilities for any of the debts and responsibilities of the business from the owners or operators of the business. To become incorporated means to create a wall between these interests so that the business can operate free from personal interests and the person or individuals do not have to bear all of the responsibility for being in business.
To become incorporated also means that there is an agreement to operate the business under a series of specified conditions. They include separating the ambitions and interests of a number of groups who may stand to gain or lose from the operations of the business. Each group is provided rights and bears some of the responsibility for the ultimate success or failure of the corporation.
The owners of a corporation are the shareholders. They can purchase or be granted shares in the corporation and they hold the legal ownership of the corporation as specified in the articles of incorporation. The shareholders in a business that has become incorporated elect a Board of Directors to oversee the corporation and also elect the Officers of the corporation such as the President, Chief Operating Officer, Treasurer, and Secretary. The Officers are responsible for the day to day operations of the corporation and the Board of Directors oversees their work. The Board reports on business activities to the shareholders at a general meeting which must be held every year.
The step to become incorporated is a sign of maturity for a business, especially a small business. Many successful businesses also operate as LLCs or limited liability companies, an action that accomplishes many of the same objectives as the move to become incorporated. Others opt for the even simpler processes of registering as a sole proprietor or partnership, both of which cost far less than the somewhat lengthy process to become incorporated, however they lose the liability protection and some tax benefits.
A good business lawyer can help evaluate the decision to become incorporated and a qualified accountant can provide information on the tax advantages and possible downsides of moving in this direction. Once a decision is made to become incorporated then articles of incorporation must be filed with the state in which the business will become incorporated.
That might be the business's home state or the state in which a majority of the Board of Directors reside, or it can be in a state that provides certain advantages and tax breaks if a business chooses to incorporate there.
What's deductible? Believe it or not, anything is deductible. Anything? Yes, anything. Let me explain.
Anything is deductible, provided that it is specifically mentioned in the tax code as deductible. It's as if Uncle Sam is saying, with a big smile on his face, "This particular item is deductible, no doubt about it."
Anything is deductible, provided that it is not specifically mentioned in the tax code as non-deductible. There are deductions that are specifically disallowed. Again, imagine Uncle Sam (this time with a frown) telling you, "Sorry, but this particular item is not deductible, no doubt about it."
But what most taxpayers do not realize (and the IRS is in no hurry to tell you this) is that most deductions are not specifically mentioned anywhere in the tax code. By that I mean this: most allowable deductions are not said to be deductible or non-deductible. Getting confused? Bear with me here.
For example, where does it say in the tax code that paper clips used in your office are deductible? Guess what - it doesn't. How about staples? Same thing -- there isn't really a specific reference to that either. But neither does it say that paper clips (or staples) are non-deductible.
Then how do we know what is deductible and what isn't? Because the tax code does provide some general rules about what is deductible, and these general rules can be boiled down to this famous statement: Anything is deductible, provided that it is an ordinary and necessary business expense. Any expense that meets that two-part requirement is deductible. Let's unpack that concept.
Here's how the IRS defines these two requirements: By "ordinary", the tax code simply means an expense that is "common and accepted" in your type of business. Is it common for an office to use paper clips in the normal course of business? Obviously. How about staples (not to mention the stapler)? Of course.
Not only are basic office supplies commonly used in virtually every business, but it is an accepted practice for these items to be a normal part of a typical business, right? I think you get the idea. And you should also now see why the tax code doesn't specifically mention paper clips or staples in it's list of legitimate business deductions.
By "necessary", the tax code means an expense that is appropriate and helpful for your business. Now apply that concept to office supplies. Are paper clips and steps appropriate and helpful? Absolutely.
Both David Gass & Wayne M Davies are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
David Gass has sinced written about articles on various topics from Accounting Guide, Finances and Network Marketing. David Gass is President of Business Credit Services, Inc. His company publishes a on Small Business Consulting at their web site. David Gass's top article generates over 246000 views. to your Favourites.
Wayne M Davies has sinced written about articles on various topics from . Looking for more small business tax tips? For a free copy of the 25-page Special Report "How To Instantly Double Your Deductions", visit