Most organizations have had a physical document archive that has grown over the years. This includes filing cabinets, bookshelves, archive boxes or Compactus shelving storing a litany of different business documents.
In recent years physical archiving has been superseded by electronic document management systems (EDMS). As digitisation becomes more pervasive document controllers will need to decide what to do with the information stored in their physical document archives.
These physical archives aren’t always a high priority for most office managers, so, putting off the decision to digitize is understandable. Even so, most office managers agree that physical archiving is not an ideal way for storing historical documents and whilst the decision can be delayed for now, they know that ultimately they must choose to either destroy or digitize their physical archives.
If destroying the information is not a suitable course of action digitising the archive is the only way forward. The argument for digitising a physical archive is strong. As you’d expect scanning your archive will give you all the benefits provided by your EDMS and as such the business case is similar to that of installing an EDMS in the first place. We’ve gone through some basic reasons why document controllers and office managers digitize their physical document archives :
Reason 1 : Reducing Storage Costs
Perth office space is at an all-time premium and thanks to the one in a hundred year mining boom it doesn’t look like it will change any time soon. Costs associated with filing cabinets include the floor space they occupy, the cabinet itself plus the paper within it. Reducing the number of filing cabinets in your office reclaims thousands of dollars of poorly utilised office space. Whilst offsite storage can reduce the cost, especially for those in the CBD it introduces its own unique problems and ongoing charges.
Reason 2 : Reducing Retrieval Costs
A large part of the cost of your archive is the time it takes to retrieve documents from it. Finding documents can be difficult in large, disorganized archives and chew up a lot of labour time. Even the best organised physical archive will soak up hours of your employee’s time and retrieval times and costs can grow considerably when documents are stored offsite. Compared to the time taken to search through an EDMS the long term cost of storage and retrieval of electronic documents is considerably lower.
Reason 3 : Meeting Statutory Requirements
Depending on your industry you may have a legal requirement to retain certain documents. Government instrumentalities have a more pressing need to retain documents for longer periods of time. The period can be as long as 20 years once a document becomes inactive. Scanning your archive allows simple access to the documents without having to worry about the safety of the document for 20 years or more.
Reason 4 : Surviving a Disaster
Physical archives are susceptible to fire & water damage. Scanning your archive allows you to create multiple redundancies for these documents in separate locations across the business. In the event of a disaster, business interruption is reduced to the absolute minimum.
Reason 5 : Maintaining Archive Integrity
Physical archives deteriorate over time. What’s worse is the use of the archive also can interfere with its integrity, files can go missing and papers can be returned to the archive in the wrong spot. Digitising the archive halts the process of document ageing and misfiling, preserving the integrity of the database.
Reason 6 : Future proofing
Your organization never knows what’s going to happen in the future. Legal challenges may require evidence of original documentation. Even worse critical design flaws in the future may require referencing original plans. As some buildings are designed to last 100 years, it’s unlikely your predecessor will be able to find those blueprints from 2002 in 2102 unless they’re in a safe place.
Limited liability company taxation is very formulaic, which allows new LLC owners to more easily predict what their tax liability will be. Llcs have a set of default rules along with several elections you may take to alter your llc’s tax treatment. The default LLC tax laws change depending on the number of members (owners) the limited liability company has.
Single-Member LLC Default Tax Rules
A single-member LLC (only one owner) is treated by default as a disregarded entity by the IRS. There is no llc tax return to file because the IRS does not consider your Limited Liability Company to be a separate entity. Instead, the income and deductions of the LLC flow through or pass through to the single member. The one owner then claims the income and deductions on his Schedule C, Profit or Loss From a Sole Proprietorship, and pays the llc taxes.
In this way, single member llc taxation is the same as sole proprietorship taxation if the owner keeps the default rules.
Multiple-Member LLC Default Tax Rules
Limited liability companies with multiple members are treated by the IRS as partnerships. Like in a single-member LLC, the profits and deductions from a multiple-member LLC flow through or pass through to the owners to be claimed on their own personal income tax returns. Unlike a single-member llc, limited liability companies with multiple owners must file an informational tax return with the IRS. No money is due with the informational LLC tax return.
Form 1065 is for partnership tax returns, but it is also the appropriate llc tax form for default multi-member LLCs. Each member must also receive Form K-1, which is sent along with the individual member’s personal income tax return.
Electing Different LLC Taxes
LLC taxation gets a bit trickier when you deal with possible elections. The good news is that if you wish to keep the default llc tax rules, you do not have to do anything; your LLC is automatically a disregarded entity and you automatically pay taxes in line with one of the llc tax laws above.
You may, however, elect to be taxed as a corporation. This decision does not affect the operation of your LLC, your limited liability, your state requirements, or anything else; it only affects how the IRS taxes your llc.
Use IRS Form 8832 to make your initial election or to change your LLC tax status later. The rules for election are the same for single-member LLCs and limited liability companies with more than one member. The only difference is that single-member LLCs choose to be taxed as a sole-proprietorship or corporation, while multi-member LLCs choose to be taxed as a partnership or corporation.
Complicating matters a bit is the fact that there are actually two types of corporate taxation: Subchapter S and Subchapter C. Those corporations that elect the tax rules under Subchapter S are referred to as S-Corporations, while those that elect under Subchapter C are C-Corporations. The tax law varies slightly between the two, and how those rules affect LLCs will be discussed below.
Effect of LLC Tax Election
Since your LLC tax status only has an effect on how much you must pay in llc taxes, business owners tend to want the status that saves them the most money. This is one of the biggest llc tax advantages; you get to choose whatever structure most benefits you. Figuring out which one to take, though, can be confusing and you should hire a competent tax attorney or CPA if you need assistance.
Here are some general guidelines:
- Single Member LLC (Disregarded Entity) – A single-member llc (one owner) must pay self-employment tax. In addition to claiming all profits and losses on Schedule C, you must also calculate self-employment tax due on Schedule SE.
- Multi Member LLC (Partnership) – A multi-member llc (more than one owner) also pays self-employment taxes. The limited liability company itself files an informational llc tax return (Form 1065) and issues a K-1 to each member. Then, the llc taxes are paid by each member according to his share of the profits and losses. Like in a single-member LLC, each member files a Schedule C and calculates self-employment tax on Schedule SE.
- LLC Treated as an S-Corporation – Profit disbursements to members in S-Corp LLCs must be reported on IRS tax return Form 1120S. Your Limited Liability Company will also owe payroll tax for wages paid to employees, including employees who are members. However, the S-Corp LLC tax advantages are that it pays neither self-employment tax (like single-member disregarded entities or multi-member partnership LLCs) nor corporate income tax (like C-Corp LLCs).
- LLC Treated as a C-Corporation – Corporate income tax is due with Form 1120 if you elect to have your limited liability company taxed as a C-Corp. Additionally, any profits paid to owners/members in the form of dividends (unearned income) are subject to dividend tax. C-Corp LLCs also owe payroll tax for wages, but the owners do not have to pay self-employment tax.
Which LLC tax election you make is a personal choice that should be discussed with all members and a licensed tax attorney or CPA. What selection offers the most llc tax advantages now might not be as advantageous later as your business grows. Similarly, what may be appropriate for a large limited liability company might not be right for you if you plan to keep your LLC small. Llc taxes can be complicated, and you should understand your obligations fully before you file your first llc tax return.
Deciding between an LLP and LLC can be difficult unless you fully understand the differences between the two entities. There are many similarities between the LLP and LLC, but there are a few key differences you must examine in making your choice. State laws vary, and it is possible that your type of business is restricted to either the LLP or LLC, so knowing the laws of your state is also important. If you have any confusion on this point, speak with an attorney licensed to practice law in your jurisdiction. The Secretary of State’s office may also be able to provide some insight.
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Your LLC can always have employees regardless of the number of members or whether your LLC is member-managed or manager-managed. Employees need not be members themselves, though members may be employees if they would like. Before you hire any employees, though, ensure that the two necessary requirements are fulfilled.
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LLC costs are low compared with other types of business entities. This makes the LLC ideal for small business owners who do not yet have a lot of capital to invest in forming their business. Minimizing your initial costs will help to make your business profitable as soon as possible. You should know exactly how much an LLC costs before you start the process of setting up your limited liability company. If possible, you may even want to investigate LLC costs by state to determine if a neighboring state is less expensive.
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