Small Business

No Whitewashing This Taxing Issue


By Karen E. Klein Q: My husband owns a small painting business and wants to go into partnership with a friend. I'm concerned, however, because there are back taxes owing on our business. Is it wise to get involved in a partnership when we have this tax liability? -- M.E., San Francisco

A: When an entrepreneur considers entering into a partnership, serious thought is always required. And when you choose a business partner, the saying goes, take twice as much care as you would when choosing a spouse: After all, a spouse can only claim half of what you own, whereas a partner could take you for everything!

If your husband currently runs the painting business as a sole

proprietorship and decides to go into business with his buddy, they should start a new business entity structured as a legal partnership, advises CPA Danielle M. Hewitt, of Keyhan Hewitt Accountancy and the Invisible Accountant. That way, each would contribute a certain amount of cash and/or assets to the partnership, and the back taxes incurred when the business was a sole proprietorship would not be the responsibility of the newly formed outfit.

"That is what I would demand if I were a partner coming in to this situation," Hewitt says. "You and your husband will be responsible for sorting out the previous back taxes of the sole proprietorship with your own financial resources, and you would not use resources of the newly formed partnership to pay them." Hope that helps!

Editor's note: When it comes to marketing, Corporate America bandies about big words -- branding, product launches, value-added -- and backs them up with bigger bucks. Meanwhile, small-business owners implement huge marketing efforts on small budgets. BusinessWeek Online's SmallBiz would like to recognize these small businesses, give their strategies a boost, and share their successes. So, if your marketing drive achieved good results, send us an e-mail at smartanswers@businessweek.com and tell us what you're doing. We will choose the most interesting submissions, interview the business owners, and have a marketing expert comment. Have a question about running your business? Ask our small-business experts. Send us an e-mail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 46th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.


Steve Ballmer, Power Forward
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus