General Article

Using Your EA CPE to Advise Taxpayers With LLCs

Using Your EA CPE to Advise Taxpayers With LLCs

Taxpayers with LLCs are ideal prospective clients for enrolled agents. There are many tax matters that these business owners fail to correctly address unless they obtain professional assistance. Marketing yourself as a trusted source of tax advice to owners of LLCs is a way to grow your business for providing many services to these individuals.

An LLC is a business structure created with the agency of a state. They are popular because the owners have limited liability that’s similar to a corporation. However, an LLC is not a recognized entity of the federal government.

The IRS automatically treats an LLC as a pass-through entity for tax purposes. That’s why your knowledge from enrolled agent continuing education becomes valuable. Understanding the tax treatment for LLCs permits the owners to conduct some planning.

LLC owners may elect tax status that’s different than the IRS default choice. That is, any LLC can obtain tax status as a corporation. Otherwise, the IRS taxes an LLC with only one member like a proprietorship and an LLC with multiple members as a partnership. The differential tax reporting is all covered in your enrolled agent course.

A proprietor incurs regular income tax plus self-employment tax on business profit. The same tax assessment is incurred on a partner’s share of profit. But you can show LLC owners how corporations are taxed differently. Your EA CPE gives you the details to accurately convey this situation. The self-employment tax doesn’t apply to corporate profits and the substitute payment of Social Security and Medicare taxes is likely lower.

You can help LLC owners who want to incur tax as a corporation file Form 8832 with the IRS. In order to tax the LLC as an S corporation, Form 2553 is filed. You have to act quickly because the election is normally effective no more than 75 days prior to filing a form. However, the IRS can grant an initial classification election more than 75 days after the LLC is formed.

This extension is not available for a change in classification. But you can always advise an LLC about converting to a corporation from its default status as a pass-through entity. Before suggesting the change, you have to determine the potential tax savings and illustrate the operational process for the LLC to follow as a corporation.

In many cases, tax status as a corporation is what LLC owners were expecting when they created their entities. After helping them achieve this, you gain the opportunity to utilize your tax CPE for conducting their ongoing tax return preparation.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

General Article

The Engineering Business Plan and the Business Model

The Engineering Business Plan and the Business Model

Separate from a Business Plan is the Business Model. The Business Model is nothing more then a description of the means and methods the firm will employ to earn revenues projected by the Business Plan. The Business Plan describes what the business wants to accomplish and what resources it will use to reach those objectives. The model represents the business as a system of a series of steps (actions) to generate revenue and make a profit. The model includes the components and functions of the business, as well as the revenues it will generate and the expenses it incurs.

The traditional Civil Engineering Business Model is as simple as the engineering company and the customers within a key market like Land Development. The engineering company provides the services that the customer needs and wants, and in return the client pays a fess for those services. Once the engineering company has paid all of its expenses including salaries, the company is left with its profit.

This model although simplistic works well if there is very little or no competition and there is plenty of demand for your services. But rarely is this the situation especially in a declining market. The model in most cases needs to be more robust. One needs to see the “bigger picture.” In order to support the Business Plan the Model needs to address the four main components of the business; Framework, Financial, Client, and the Offer.

Business Framework (Infrastructure):

Key Resources – What are the company’s capabilities necessary to make the Business Plan possible?

Key Activities – What company activities are necessary to implement the Business Plan?

Key Partners – What company partners are motivated to participate in the Business Plan?

Client (Current and Prospective Clients):

Segment(s) of Clients – What is (are) the targeted audience for the company’s products and services?

Communication and Distribution Channels (Marketing) – What are the means the company will utilize to reach the customer and offer them those products and services? What marketing campaigns will the company utilize to reach its targeted clients?

Client Relationship – What are the processes the company will establish to maintain its relationship with the clients?

Business Financial:

Revenue Streams – What are the company’s sources that will generate funds to support the Business Plan?

Cost Structure – What costs will result from engaging in the Business Plan? What will be the company’s expenses?

Value Proposition (The Offer):

What are the company’s products and services being offered to the market?

To sum up the Business Model – The business resources of technical staff and equipment complemented by business partners are able to offer a wide range of products and services with a particular billing rate to potential and existing clients, which are obtained through on-going marketing efforts of the company’s staff with an ultimate goal of presenting a proposal and an agreement between the client and the business to provide certain services and products for revenues.

There are multitude of schematics that are used to represent the Business Model, but they all include the four components; the Business Infrastructure, Financial Strategies, Clients, and the Offer or Proposition. In order to get to the end result, revenues, each of these four components of the Business Model must be operating at the best level of efficiency in order to obtain the most revenues. Failure in any step will either reduce the amount of revenue or completely run your business out of business.

It would be difficult to provide services or products to your clients if the resources necessary were inadequate. Imagine if your firm was contracted to provide a Technical Drainage Study for a 200 acre site, but you were not capable of analyzing a proposed open channel using any of the available commercial software. You then have to sub-contract this work out, hopefully to one of your partner companies, to assist you in this area of expertise. Otherwise, you will not be able to provide the service you were contacted to perform.

The same is true if your firm has all of the necessary engineering design expertise it requires and has also contracted with other sub-consultants to provide surveying services, but you have no marketing expertise. Although there are a number of needy clients in your local market, you have no way of contacting them nor do you even know how to identify your potential clients. The chain is broken because there is no way for you to contract with clients to provide the services you have available. Of course, we you have no clients you have no revenues, and when you have no revenues you have no business.

Even if you have an excellent infrastructure and business partners, and you have a huge pipeline of clients that you obtained through marketing, all will be for not if your proposals do not provide your clients with the necessary services they need at a fair price.

The Engineering Business Model a tool that assists the company to implement the Business Plan. A properly prepared Business Plan and a well designed Business Model will focus your company on the task at hand, which is to obtain contracts and clients and to produce profits. If you have not already done so, now is the time to either put together your first business plan or update an existing one. Once completed, the plan is a resource with a great deal of information. It will make you well of aware of competition, the market, and your company’s capabilities. Updating the plan regularly will keep you well informed on what is happening in your business.

Most engineers have excellent technical skills, but not necessarily the same level of expertise in management. It is responsibility of the engineer to develop these management skills through continuing education. This continuing education can be obtained through Community Colleges, Universities, Professional Training Programs, Professional Organizations, and online training courses. In most states these continuing education courses qualify for continuing education units (CEU) or Professional Development Hours (PDH).