should we start a separate corp?

[schirallicpa]

I have a new client that has an S-corp set up. He actually runs two busineses out of it. He is an auctioneer, and he has a blacktop company.

They have 2 separate chbks set up, and 2 QB files. But inevitably, one pays for the other sometimes. Which is fine.

I have been asked by them and their attorney if we shouldn't set up a separate corp for each business.

Any thoughts?

[taxxcpa]

It may be best to set up two corporations. I have one client who has two similar businesses and I keep a set of books for each of the, but it is only one corporation. I combine the two sets of books in order to file the tax return. I have another client that has three businesses and two corporations. He keeps two of the businesses that are in a single corporation on just one set of books.

It boils down to selecting what your preference is (or your client's preference).

[JohnH]

If the ownership in both proposed corporations is the same, I'd think twice about splitting into multiple entities. Assuming the corp charter uses a general statement of purpose, I think there should be other reasons for multiple corps. Different business activities wouldn't be the standard I'd use. If one business has much greater potential liability exposure, regulatory issues, or other such influences, that might change the decision. Or if there might be some tax advantage to using different accounting methods for each separate corp. But if the current accounting system is working fine and none of the above factors are a problem, why complictate things?

[kcjenkins]

i agree with John, unless there are other factors, as there often are. Such as if he has different employees in the different businesses, for just one example, and he wants to take one into the ownership of one of the businesses. I know you can all think of a dozen other reasons why he might want to keep the two businesses separate. I'd just suggest starting by talking to the client about what his long range plans are, and why he's thinking of multiple corps. Let him do most of the talking until you get a feel for what is worrying him, what he's got in the back of his mind. Then you can advise him how best to get to where he wants to be.

I think we sometimes push clients into the setup that WE think is best for them, before we find out enough about what their real goals are. I know I did a few times.

[Gail in Virginia]

I think we sometimes push clients into the setup that WE think is best for them, before we find out enough about what their real goals are. I know I did a few times.

Amen. I particularly see this with lawyers who insist on setting sole proprietors up as corporations. Sometimes they have good reason, but they almost never explain to the client how much more complicated their taxes will become and how important it is to completely separate their personal transactions from their business transaction. Communication is so important!

[jainen]

>>we sometimes push clients into the setup that WE think is best<<

Not me. I NEVER recommend a choice of entity. It is beyond my expertise. In my opinion, it's too close to practicing law which can easily backfire big time. I only provide general definitions, even though clients often want to focus on a particular point. I insist that tax implications are not the most important factor. They wouldn't believe me anyway--for some reason my credibility is less than their hair stylist. So I don't give them a chance to misinterpret my advice.

[Jack from Ohio]

... They wouldn't believe me anyway--for some reason my credibility is less than their hair stylist. So I don't give them a chance to misinterpret my advice.

I have the same issue! Wish I knew where the hair stylists went to tax school so I could be just as informed....