Tax Deduction If You Have Two Businesses

Tax Deduction If You Have Two Businesses

The term "multiple businesses" includes multinationals with the participation of many interconnected entities. But many entrepreneurs own and operate two or more businesses; they can carry out these different activities through different entities.

It is not convincing to practice more businesses for different reasons, but there are reasons to do each activity in a business. Here are the factors to consider:

Economic Reasons

From an administrative view, it might be more comfortable and cheaper to manage a single entity. In this case, all revenues and expenses for separate activities must be taken into account for a single entity, Only one tax return is filed. This saves costs.

However, not all activities can be appropriate to join a single company. For example, a business coach may work for years as a sole proprietor, then purchase a mall that is a limited liability company (LLC). Theoretically, both could work under LLC, but from a marketing perspective, separate entities make more sense.

Legal Reasons

In general, national law does not preclude the pursuit of different activities within the same company, but separate entities provide a means of creating maximum protection for the personal liability of the owners. It is a standard procedure for building owners to own each property in a different company or LLC. This strategy ensures that each company's activities are protected separately in the event of a lawsuit against a particular company. For example, if a person has two small motels, each under a separate society, there is a lawsuit against one, the other is fully protected.

In some states, you can use the LLC series (also known as LLC cell) in which an LLC group runs with an umbrella company. This reduces administrative costs but protects the liability of any limited liability company. This stock is licensed in Delaware, Illinois, Kansas, Missouri, Montana, Nevada, Oklahoma, Tennessee, Texas, Utah (minor), Wisconsin and the District of Columbia.

Tax Reasons

There may be tax reasons for separate companies belonging to different entities:

The financial year: Depending on the nature of the business, it may be appropriate to have one activity in a calendar year and another in a fiscal year.

  • Passive assets: If the tax law is considered a passive investor, the operating losses may not be deductible. However, if you manage several activities in a company and you suffer loss, in principle, the remuneration generates profits from other activities of the company. Also, these passive asset loss rules are used to determine exposure to net income from a tax investment (3.8% of Medicare's additional tax). Note: Passive loss rules are very complex activities, so discuss your situation with a tax advisor.
  • Sale Prospects: Although you may not have it in mind when you start a business, your final game must be a decisive factor in the decision to separate the business from multiple entities. For example, if you have a dental practice and the building from which it operates, it is generally advisable to keep them in separate entities. The practice can rent a space, but the separation of the property into two entities makes it easier to sell the practice by keeping the building.
  • Real estate planning: You may decide to get more interest in an LLC for family members and assign ownership and control to younger members of the family. Again, this is facilitated by the separation of companies.

If you own multiple C companies, you may be subject to the "subsidiary" rules that trigger a particular tax treatment. Some treatments are disadvantageous (for example, share tax, deduction under paragraph 179), but there are also certain benefits (for example, a reduction in payroll taxes for an employee who works for more than one company).

Make sure to examine the consequences of state taxes to create one or more businesses. If your state imposes a tax to operate a business, an entity reduces taxable costs or other annual costs. For example, California levies annual fees for limited liability companies (in addition to the Annual Income Tax Commission), so the use of separate entities increases.


So you have to manage your multiple activities in one entity or use various solutions? There is no answer for every situation. Discuss your activities and concerns with a qualified lawyer, who will advise you on the best way forward.

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