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October Finishes Negative

   
In the last week of October, independent grocers reported that their same store sales were down 2.75 percent compared to the same week in 2015. It closed out a tough October in which all four weeks failed to generate as many sales as the prior year. Overall, October was down 0.78% and customer counts were up slightly at 0.06%.

Last week the Bureau of Labor Statistics released its October unemployment report, which showed a continuation of the steady increases the economy has experienced over the past year. During the month, 161,000 jobs were added and the unemployment rate dropped to 4.9%. The size of the labor force and the participation rate dipped slightly. Revisions in job gains for the past two monthsand hourly earnings got a boost. It was a mixed bag, but showed consistent growth.

This week’s election resulted in a Donald Trump victory and in January the executive branch will change over from Democrat to Republican. Earlier this year we laid out the details of Trump’s tax plan, which you can see in the September Week 4 Pulse here.


Same Store Sales        
% Change from last year

Same Store Sales – Previous Months

BGBC Partners, LLP Tax Update: A Primer on S Corporations
Whether you are just starting out as a grocer, or your store is on the mature end of the business life cycle, it is always wise to consider and reconsider the best legal form to operate the business through. One of the more popular structures is the S Corporation. In this Tax Update, we will discuss some of the tax benefits and requirements associated with using an S Corporation, in an effort to help you evaluate whether this entity form is a fit for your business.
 
S corporations combine the limited liability of a corporation and the flow-through tax treatment of a partnership.
 
Why is the flow-through tax treatment important? Shareholders of a regular “C” corporation are subject to two layers of tax: one tax at the corporate level and the other at the individual level when funds are distributed. However, with an S corporation, business income or loss is passed-through to shareholders onto their personal tax returns thereby subjecting the income to only one layer of tax.
 
With an S corporation, there are also various retirement strategies which can be implemented such as establishing a SEP-IRA or a SIMPLE Plan.  These plans allow for tax-deductible contributions while saving for retirement.  Keep in mind though that some of these strategies can also be offered with other entity structures.
 
Another significant benefit of an S corporation involves the self-employment tax.  With an S corporation, distributions are not subject to the self-employment tax.  However, salary payments must be considered “reasonable” (in this case salary cannot be too low) or the IRS can try to recharacterize some of the distribution to salary and impose payroll taxes over several years.  This flexibility in setting a reasonable salary contrasts with a general partner or sole proprietorship in which self-employment tax is imposed on net earnings from the business.
 
Regarding the requirements of forming an S corporation, first, there can be no more than 100 shareholders. Second, of these 100 shareholders, they must all be U.S. citizens or residents and must be a “natural” person although certain trusts can also be owners. This means that if any shareholder is a resident of another country, or if any shareholder is a corporation or partnership, the S Corporation election is not available. Finally, there can only be one class of stock available, although there can be voting and nonvoting stock. On this last point, the “one class of stock” rules can be tricky. Items which don’t appear to be a different class of stock might be construed to be by the IRS.
 
As you can see, there are very distinct advantages of using an S corporation, but certain requirements must be kept in mind.  Contact your CPA in order to adequately evaluate which of the various entity forms fit best for your business.

  
BGBC Partners, LLP is a full service certified public accounting and business consulting practice.  

For more information, contact
Brad Bell, CPA
or Steve Reed, CPA/ABV/CFF at BGBC Partners, LLP (317-633-4700).
For More Information,
Contact Mark Ehleben
877-435-9400 x1402
marke@fmssolutions.com
8028 Ritchie Highway | Suite 212 | Pasadena, MD 21122


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