Los Angeles & Orange County Business CPA
Zaher Fallahi, CPA Since 1983, Tax Preparation Services Since 1979
Reduce IRS Audit Risk and Protect Your Business
Sole Proprietors with over $100,000 in annual gross receipts face a higher risk of IRS audits. Incorporating your business can offer protection and reduce that risk.
Benefits of Incorporation and Key Considerations
Incorporating your business can shield owners from personal liability—but only if done properly. Here’s what you need to know:
1. Proper Incorporation is Essential
Many businesses rely on unqualified individuals to form corporations, resulting in costly mistakes only discovered during lawsuits or IRS audits. Work with a knowledgeable business attorney to ensure correct incorporation.
2. Maintain Legal Compliance
Incorporation is just the beginning. You must continuously comply with state corporate laws, including adequate capitalization and proper record-keeping.
3. Industry-Specific Compliance
Consult an attorney familiar with your industry. For example, professional medical corporations must meet state medical board requirements.
4. Respect the Corporation as a Separate Entity
- Keep personal and business finances separate.
- Do not pay personal expenses through the corporation.
- Document loans to and from the corporation with proper legal formalities.
- Have corporate minutes prepared for major decisions.
- Ensure reasonable capitalization and proper issuance of stock certificates.
- Failure to follow these steps could result in “piercing the corporate veil,” exposing you to personal liability for business debts.
Buying a Business? Protect Yourself
When acquiring a business, consider these best practices:
- Purchase Assets, Not the Entity: Buying assets helps avoid inheriting lawsuits or unknown liabilities—unless the entity holds significant goodwill. Note: Asset purchases require specific IRS year-end reporting.
- Conduct Due Diligence: Hire a qualified attorney or CPA experienced in your industry.
- Draft Contracts Carefully: Have a business lawyer review or draft purchase agreements.
- Optimize Tax Benefits: Consult a tax attorney to structure the purchase price for maximum tax advantage. Poor structuring can have lasting tax consequences.
Tax Planning for Corporations
S Corporations:
S Corps don’t pay federal income tax, and California tax is the greater of $800 or 1.5% of net income. However:
- Owners must pay themselves a reasonable salary.
- Failure to do so is a common IRS audit trigger.
- Determining reasonable compensation depends on case law, your specialty, business income, and other factors.
- Have your CPA handle payroll to ensure compliance and monitor compensation levels.
C Corporations:
With the new flat 21% corporate tax rate, it may be more advantageous to operate as a C Corporation. Consult a CPA or tax attorney to determine the best structure for your business.
Employment Classification: Avoid Audit Triggers
Misclassifying employees as independent contractors can trigger audits by the IRS and state agencies (such as California’s EDD), leading to substantial taxes, penalties, and legal fees.
- Employment tax audits can extend 3 to 10 years back.
- Courts use some of the numerous legal factors—20 under IRS rules and 22 under California law, along with State and Federal case laws—to determine proper worker classification.
Always consult your tax attorney or CPA before making classification decisions.
Minimize Your Audit Risk with Experienced Professionals
- Work with CPAs experienced in your industry for accounting and tax preparation. For expert tax services, visit Tax CPA Services.
- Poor-quality advisors may offer low fees but can cause costly audits.
- If audited, do not retain the person who prepared your tax return, they have a conflict of interest.
For IRS Audit Defense, hire an experienced tax attorney, CPA:
- Attorneys offer Attorney-Client Privilege, protecting confidential communications.
- Attorneys are trained to represent you before the IRS and in tax court.
- If the audit turns criminal, non-attorney advisors may be compelled to testify against you.
Stay Informed and Protected
- Learn about recent tax law changes.
- Discover the 20% Deduction for Pass-Through Entities.
- Explore comprehensive legal support for your business.
- Need help with cryptocurrency tax returns? Zaher Fallahi, CPA, provides specialized services: Cryptocurrency Tax Return Preparation
Remember: Cheap legal or tax services often end up costing more in the long run. As the saying goes, “I am not rich enough to afford cheap service.” Protect your business with qualified legal and tax professionals.
Over three decades representing physicians, dentists, and healthcare professionals. Let Us Help You Protect Your Practice and Minimize Your Taxes.
Nationally Recognized Certified Public Accountnat (CPA), Zaher Fallahi, assists nationwide clients with the IRS audits, IRS Offers-in-Compromise, Foreign Gift Tax, Foreign Inheritance tax, and Cryptocurrency Tax, including taxation of defrauded crypto owners, foreign gift tax, and foreign inheritance tax.
Nationwide Toll-Free: (877) 687-7558
Email: zfallahi@zfcpa.com
Office Locations:
Los Angeles Financial District, CPA and Business Lawyer-US Bank Tower
Formation of C Corporation, S Corporation and LLC Nationwide
633 W. 5th Street, 26th Floor
Los Angeles, CA 90071
Phone: (310) 719-1040 | Toll-Free: (877) 687-7558
Orange County CPA and Business Lawyer-South Coast Plaza
Formation of C Corporation, S Corporation and LLC Nationwide
650 Town Center Drive, Suite 510
Costa Mesa, CA 92626
Phone: (714) 546-4272 | Toll-Free: (877) 687-7558
Executive Education
Harvard Law School–Executive Programs in Negotiation & Leadership
Massachusetts Institute of Technology (MIT)–Executive Certificate in Blockchain Technologies: Basis of Cryptocurrency