Ask a CPA

Credits reduce your income tax dollar for dollar. Deductions reduce your taxable income which is then taxed at a specific rate. $1000 of deductions at the 15% bracket is only worth $150. Therefore credits are more powerful than deductions.

There are basically three levels of financial statement services a CPA can provide. They are a Compilation, a Review and an Audit(sometimes referred to as an examination). The least expensive service is the Compilation and is generally accepted by banks for small personal loans, mortgages and small business loans, where an individual is required to guarantee the loan personally.

U.S. Treasury interest should not be included as taxable income on your state income tax return. It is included on your Federal tax return.

Municipal and state interest income is tax-free on your Federal tax return. Although you report it for informational purposes, it is not taxed.
Municipal interest is also not included as income if the municipal instrument originates from the state you are filing.
Out-of-state municipal bonds are not excluded on your state income tax return, only your Federal return.

When starting a business, your choice of entity includes: operating as a SOLE PROPRIETORSHIP if you own it by yourself; forming a PARTNERSHIP if there are two or more owners; or being designated as a CORPORATION or a LIMITED LIABILITY COMPANY. Your choice to operate as a corporation involves tax and non-tax considerations which require in-depth analysis of your particular situation and can only be done with a CPA in person. However, generally speaking, a corporation provides protection against personal liability for business obligations and offers the greatest flexibility in terms of ownership and transferability. Most businesses for this reason are incorporated. Further discussions with a CPA are recommended before finalizing your decision.

A "S" Corporation is formed the same way a regular "C" Corporation is formed. A corporation is a legal entity created under the laws of a particular state. It is distinct from its owners, who are called shareholders. The only difference between an "S" and a "C" is that an "S" corporation is one in which an election has been made to be treated under Subchapter "S" of the Internal Revenue Code for federal tax purposes. The filing of this "S" election permits the corporation to avoid a double taxation of its income, bypassing the corporate tax level. Generally, Form 2553 must be filed with the IRS within 75 days of incorporating. Many states also require a separate form be filed with them to allow "S" status. Other states and cities, such as New York City, do not acknowledge "S" status. As a result of these complexities, the election of "S" status should not be considered nor attempted without consulting your local CPA or attorney.

No, but a qualified professional is recommended. CPAs can be used to incorporate your business and prepare all forms required to obtain your Federal ID number and make your "Subchapter S" elections with the federal government and your state. CPAs are qualified to interact with other professionals and instruct them as to the requirements of their clients. However, CPAs should not play attorneys. Lawyers are needed to draw up shareholders' agreements, minutes and contracts based upon the advice given to you by your CPA. Lawyers reduce the advice to writing. Both a Lawyer and a CPA are valuable, necessary assets when starting your new business. You need both, but a CPA can provide the initial incorporation services.

A corporation is a legal entity formed under the laws of a particular state. The state you pick is usually the state you intend to do business in. If you are definitely going to do business in only one state and you don't believe you will raise capital from investors in the future, the answer is easy ... Use the state you are doing business in.

Each state charges different filing fees for incorporation. California is three times the cost of New York State because an $800 initial minimum tax payment is required in addition to other charges. The fee your CPA charges for incorporating usually includes these disbursements made on your behalf.

Most small businesses choose their home state to incorporate or the state they are doing business in. Delaware and Nevada have laws that protect corporation officers and directors from various litigation. Also, some other states have higher taxes on capitalization. However, if you incorporate in Delaware or Nevada, you will still be required to file and register as a foreign corporation with the Secretary of State in the state you are doing business. This will result in increased incorporating fees charged by your CPA. If you intend to maintain your business in only one state and do not anticipate going public or raising money through a private placement, then incorporate your company in the state you are doing business and forget about Delaware or Nevada for now!