Law Offices of Beverly Winstead

Is Your Business Built to Continue Without You? Succession and Continuity Planning for Established Owners

2026-09-22T13:53:19Z

Business owners spend years thinking about growth. They focus on clients, revenue, employees, systems, contracts, and the countless decisions required to build something valuable. What often receives less attention is a very different question: If you could not run your business tomorrow, what would happen next? That question is not only about death. An owner could become temporarily incapacitated, face a serious family emergency, decide to retire, receive an unexpected offer to sell, or simply reach a point where stepping away from daily operations makes sense. For an established company, succession planning is about more than deciding who may eventually own the business. It is also about making sure the company can continue operating while ownership, leadership, or decision-making authority changes. A business can have a succession plan on paper and still be poorly prepared for the day the owner is no longer available.

Who Has the Authority to Step In?

Imagine that you cannot work for several weeks. Who can make an urgent decision? Who can communicate with employees, advisers, vendors, or financial institutions? Who can sign documents when a signature is required? Who has authority under the company's governing documents to keep operations moving? Many owners assume that a spouse, adult child, trusted employee, or business partner will simply step in when needed. Legally, however, authority does not always transfer that easily. For a Maryland LLC, the operating agreement can play an important role in establishing how the company is managed, who has authority to act, and how changes in ownership or membership will be handled. That is one reason an operating agreement should not be viewed as a document that gets signed when the business is formed and then forgotten. The business you operate today may be very different from the one you started years ago. Your personal estate-planning documents also matter. A Maryland power of attorney allows you to authorize a trusted person to handle specified financial or business matters on your behalf, including during periods of incapacity if the document is durable. However, a power of attorney terminates at death. It also should not be assumed that a personal power of attorney gives an agent every authority that an owner personally held within a separate business entity. The company's operating agreement, corporate documents, partnership or shareholder agreements, contracts, and banking arrangements may impose their own requirements. That is why effective continuity planning looks at the owner's personal documents and the company's documents together.

Ownership and Control Are Not Always the Same Thing

Business owners also need to distinguish between receiving the financial value of a company and receiving the right to manage it. Suppose an owner intends to leave an LLC interest to a spouse or child. It can be tempting to assume that person will automatically step into the owner's exact position. That may not happen. Under Maryland's default LLC rules, unless the governing arrangements provide otherwise, someone who receives an economic interest in an LLC does not automatically become a member or receive the management and other noneconomic rights associated with membership. That distinction can become extremely important in a family business or a company with multiple owners. The person an owner wants to benefit financially may not necessarily be the person who should run the business. In some situations, those roles may intentionally belong to different people. A thoughtful succession plan should therefore address both questions: Who should benefit from the business, and who should have authority to manage it? The answer should be deliberate rather than something the family and remaining owners have to determine during a crisis.

Your Estate Plan and Business Documents Should Tell the Same Story

For a business owner, personal estate planning and business planning often intersect. A will or trust may describe how an owner wants an interest in the company to pass. At the same time, an operating agreement, shareholder agreement, partnership agreement, or other business document may contain separate provisions governing transfers, voting rights, management, or the admission of a new owner. Problems can arise when these documents were created at different times without being reviewed together. For example, perhaps your estate plan was prepared when the company was much smaller. Maybe you have since added another owner or expanded into new locations. Perhaps one of your children is now active in the business—or perhaps your plans have changed and you no longer want family members involved in management. Your documents should reflect the company, family, and goals you have today. A useful question for an established business owner is: If my estate plan took effect today, would my business documents allow the transition I actually intend? If you are not sure, the documents are worth reviewing together.

Multi-Owner Businesses Need a Clear Exit Plan

Succession planning becomes even more important when a business has two or more owners. What happens if one owner dies unexpectedly? What if someone wants to retire? What if one owner wants to sell while the others want to continue operating the company? What happens if an ownership interest passes to someone the remaining owners never expected to be involved? Business agreements can address many of these issues in advance. Depending on the company, the governing documents or a separate buy-sell agreement may address transfers of ownership, purchase rights, triggering events, valuation procedures, or what happens when an owner leaves the company. But having an agreement is not enough if the agreement no longer reflects reality. A document drafted when two founders launched a small company may no longer be appropriate years later when the business has employees, valuable contracts, significant assets, or a substantially different value. As the business changes, its ownership and succession documents should be reviewed as well.

Think About Taxes Before the Ownership Transfer

Business succession also has a tax component. Selling a company, transferring ownership during life, passing an interest at death, or restructuring ownership can produce different tax consequences. There is no single tax treatment that applies to every transfer. Even a “sale of the business” can be structured in different ways. For example, when a business is sold through a lump-sum sale of its assets, the purchase price generally must be allocated among the assets being transferred, and different assets can receive different tax treatment. A sale of stock or another ownership interest can be treated differently. That is one reason the structure of a transaction should be reviewed before an agreement is finalized whenever possible. S corporations create another consideration. Federal tax law limits who may qualify as an S corporation shareholder. Individuals, estates, and certain trusts may qualify, while partnerships, corporations, and nonresident alien shareholders generally are not permitted. An estate plan involving S corporation shares therefore needs to account for those requirements so that a planned transfer does not unintentionally create a problem for the company's tax status. There is no universal succession strategy that works for every business. The appropriate approach depends on the entity, owners, objectives, governing documents, and tax circumstances. The important part is having the tax conversation before the ownership transfer rather than after it has already happened.

Continuity Has to Work Outside the Legal Documents

Legal planning is essential, but continuity is also operational. Imagine again that you could not come into the office tomorrow. Would someone know how payroll is approved? Could the appropriate people access critical business systems? Does someone know where important contracts and insurance records are located? Who manages your most important client relationships? Would employees know who has decision-making authority? Does someone know how to reach the company's attorney, accountant, banker, and other important advisers? A company can have a carefully prepared long-term succession plan and still experience significant disruption if every important relationship, decision, system, and piece of information depends on one person. For established businesses, continuity planning should therefore consider both the immediate operational transition and the eventual ownership transition. The Plan Should Grow With the Business Succession planning is rarely something that should be completed once and ignored forever. Businesses evolve. So do owners and families. You may add partners, senior employees, property, intellectual property, locations, new services, or new revenue streams. The company's value may change significantly. Your personal goals may change too. A succession plan created years ago may no longer protect the business you operate today. That makes one question especially valuable: If something happened to me today, would the documents and systems already in place produce the result I actually want? If the answer is unclear, it may be time for a review.

Protecting What You Built Includes Planning for What Comes Next

Planning for succession does not mean you are preparing to walk away from your business. It means recognizing that a strong company should not depend entirely on one person's permanent availability. For an established owner, an effective continuity strategy brings together the company's governing documents, ownership structure, tax considerations, estate plan, and practical operating procedures. The goal is not to predict exactly when a transition will happen. It is to make sure that when circumstances do change, the people around you are not forced to figure out your intentions while simultaneously trying to keep the company running. You spent years building the business. Planning for how it continues is part of protecting what you built. The Law Offices of Beverly Winstead works with Maryland business owners on business, tax, and estate-planning matters, helping clients consider how these areas work together as their companies, families, and long-term goals evolve. This article is provided for general informational purposes only and does not constitute legal or tax advice. The legal and tax implications of business succession, ownership transfers, estate planning, and related tax consequences depend on the business structure, governing documents, ownership arrangements, and individual circumstances.

Year-End Tax Planning for Established Business Owners: What to Review Before Q4

2026-09-10T17:07:53Z

For an established business owner, September is a useful time to look at the year as it actually unfolded, not simply as it was projected in January. By this point, you may have a much clearer picture of revenue, expenses, payroll, major purchases, staffing changes, and other developments that could affect your tax position. That makes the period before Q4 a practical time to review whether your current tax strategy still reflects the business you are operating today. Tax planning is different from tax-return preparation. Preparing a return generally reports transactions that have already occurred. Planning gives business owners an opportunity to review their position while there may still be time to make informed business and tax decisions before year-end. The Law Offices of Beverly Winstead provides tax planning, business law, tax-problem resolution, and estate-planning services, areas that can increasingly overlap as a business grows and ownership becomes more complex.

Start With Accurate Financial Records

Before making tax decisions, start with the numbers. Review year-to-date revenue, business expenses, payroll, owner payments, major purchases, and other significant transactions. If bookkeeping or supporting documentation has fallen behind, addressing that before year-end can make the tax-planning process much more useful. The IRS requires taxpayers to maintain records that support the income, expenses, credits, and other items reported on their returns. For business assets, records may also need to establish acquisition cost, improvements, depreciation, business use, and the eventual sale or disposition of the asset. Good records do more than make tax filing easier. They allow an owner and their advisers to work from the actual financial position of the business rather than assumptions made earlier in the year.

Revisit Estimated Tax Payments

September 15, 2026 is an important federal estimated-tax date. Individuals who are required to make estimated tax payments generally have their third 2026 installment due September 15. This can include business owners whose income is not fully covered by withholding. Calendar-year corporations that are required to make federal estimated-tax payments also generally have a third installment due September 15. If business income has changed significantly during the year, it may be worth revisiting the calculation rather than assuming that an earlier projection still reflects the current tax picture. Maryland taxpayers may also have state estimated-tax obligations depending on their circumstances. Maryland lists September 15 as one of the regular estimated-payment dates for individuals, and Maryland corporations that meet the state's estimated-tax requirements generally make a third estimated payment in the ninth month of the tax year. Maryland business owners operating through pass-through entities should be particularly careful in 2026. The Comptroller issued specific guidance explaining that legislative changes affect the calculation of 2026 estimated payments for certain pass-through entities, including entities electing to pay Maryland tax at the entity level. Businesses affected by those rules should use current Maryland guidance rather than automatically relying on prior-year calculations.

Review Owner Compensation and Worker Classification

Growth often changes the way a business pays both its owners and its workforce. For S corporations, owner compensation deserves particular attention. The IRS states that an S corporation must pay reasonable compensation to a shareholder-employee for services performed before treating amounts as non-wage distributions to that shareholder-employee. What qualifies as reasonable compensation depends on the facts, including duties, experience, time devoted to the business, and what comparable businesses pay for similar work. Worker classification should also be reviewed when roles or working relationships have changed. A contract calling someone an “independent contractor” does not by itself determine federal employment-tax status. The IRS considers the actual relationship, including behavioral control, financial control, and the type of relationship between the business and worker. For a growing business, getting these issues right matters because classification can affect payroll taxes, withholding, reporting obligations, and other employer responsibilities.

Review Major Purchases Before Year-End

Business owners often hear that they should make purchases before December because something is “tax deductible.” That is not a sufficient reason to spend money. The tax treatment of equipment, property, technology, and other business assets depends on the type of asset, how it is used, when it is placed in service, and the taxpayer's particular circumstances. Different rules can apply to deductions and depreciation. Before making a significant purchase primarily for tax reasons, consider whether the expenditure makes business sense first and then determine how the applicable tax rules affect the decision. Accurate asset records are especially important because the IRS expects businesses to retain information needed to determine depreciation and any gain or loss when an asset is later disposed of.

Has the Business Outgrown Its Current Structure?

Tax planning can also reveal a larger question: Does the company's current legal and tax structure still make sense? An LLC is a state-law entity, but its federal income-tax classification can differ depending on the number of owners and elections made. An LLC may be treated for federal income-tax purposes as a disregarded entity, partnership, or corporation. That does not mean an established business should change its structure simply to pursue a particular tax result. Changing entity classification or ownership can carry legal and tax consequences of its own. Structure should therefore be reviewed in the context of the owner's broader goals, operations, liability concerns, compensation, ownership arrangements, and succession plans. Beverly's firm specifically provides assistance with business setup, business tax planning, and business contracts in addition to its tax-planning practice.

Do Not Wait Until Late December to Discuss Retirement Planning

If establishing a retirement plan is part of the company's year-end strategy, timing can matter. Different types of retirement plans operate under different rules and deadlines. For example, an employer that did not previously maintain a SIMPLE IRA generally may establish one effective between January 1 and October 1. Special rules apply in certain situations, including newly created employers. Because plan requirements vary, owners considering a new retirement arrangement should discuss the available options with the appropriate tax and retirement-plan professionals rather than assuming every plan can be created at year-end.

Year-End Planning Is About More Than Finding Another Deduction

For an established owner, tax planning should not be reduced to a December search for deductions. A more useful pre-Q4 review asks whether: your financial records are current, estimated payments still reflect current income, owner compensation and worker classification are being handled appropriately, major purchases have been evaluated before they are made, and the company's legal and tax structure still supports where the business is going. As businesses grow, these questions can also begin to overlap with succession and estate planning. Ownership transfers, future sales, incapacity, retirement, and the eventual transition of the company may all involve both legal and tax considerations. That is why September can be such a useful checkpoint. The goal is not to make a last-minute tax move. It is to enter Q4 with a clearer picture of where the business stands and enough time to make informed decisions before the year closes. The Law Offices of Beverly Winstead assists Maryland clients with tax planning and analysis, prior-year tax review, business tax planning, business contracts, tax controversies, and estate planning. This article is for general informational purposes only and does not constitute legal or tax advice. Tax and legal consequences depend on the specific facts and circumstances of each business and owner.

How Black-Owned Businesses Can Build, Protect, and Transfer Generational Wealth

2026-08-19T06:33:46Z

Building a successful business can create income, independence, jobs, and opportunity. But for many Black business owners, success is about more than what the company earns today. It is also about what the business may provide for children, grandchildren, employees, and the wider community in the future.

That is where generational wealth planning comes in.

A profitable company can become one of a family’s most valuable assets, but wealth does not automatically transfer successfully from one generation to the next. The business must be structured, managed, protected, and eventually transferred with intention.

For Black-owned businesses in Maryland, that means looking beyond revenue and asking a bigger question:

How can the business continue creating value even after the founder is no longer running it?

The answer may involve business structure, tax planning, retirement strategy, succession planning, valuation, and estate planning working together.

Start With the Right Business Structure

One of the first building blocks of long-term business planning is choosing an appropriate legal structure.

The IRS recognizes common business forms including sole proprietorships, partnerships, corporations, S corporations, and limited liability companies. The structure of a business can affect which federal income tax return must be filed and how the owners are taxed.

Maryland also emphasizes that business structure affects ownership and management, filing requirements, tax forms, and the level of personal risk associated with the business.

A structure that made sense when an entrepreneur first launched may not necessarily remain the best fit after the company grows.

A sole proprietorship, for example, may be simple to operate, but the owner is personally responsible for the business’s debts and losses. Maryland describes an LLC as a structure that can protect its members from personal responsibility for business debts while offering operational flexibility.

However, limited liability protection is not absolute, and forming an LLC does not automatically determine how the business will be taxed.

For federal income tax purposes, a single-member LLC is generally treated as disregarded from its owner unless it elects corporate treatment. Other LLCs can be classified differently depending on ownership and elections made.

So the better question is not simply:

“Should I have an LLC?”

Instead, business owners should ask:

“Does my current structure support my ownership, tax, risk-management, and long-term succession goals?”

As a business grows, the answer may change.

Use Tax Planning as Part of the Growth Strategy

Building wealth is not only about increasing revenue. Business owners also need to understand the tax consequences of earning income, reinvesting profits, paying owners, hiring employees, purchasing assets, and eventually transferring the company.

That is why tax planning should not begin when the tax return is due.

It should be part of ongoing business planning.

Depending on the type of business, tax planning may include:

Estimated tax payments
Payroll and employment taxes
Owner compensation
Business deductions
Retirement contributions
Major equipment or property purchases
Ownership changes
Business sales or transfers

Compensation planning is particularly important for certain corporations.

The IRS states that corporate officers are generally employees and that wages paid to an officer should generally reflect the services they perform. The IRS may adjust returns when compensation is unreasonably low.

For S corporations specifically, paying an owner through distributions is not a substitute for reasonable compensation when the shareholder performs services for the corporation.

Tax planning should therefore focus on complying with applicable rules while understanding the consequences of decisions before they are made.

The goal is not to chase tax “shortcuts.” It is to make informed decisions that support the business’s broader financial strategy.

Keep Business and Personal Finances Organized

As a company grows, good financial records become increasingly important.

Business owners should maintain records that clearly document business income, expenses, transactions, assets, and liabilities.

Strong financial records help owners understand whether the company is truly building value.

They can also support:

Accurate tax reporting
Legitimate business deductions
Cash-flow planning
Loan applications
Business valuation
Investment decisions
Ownership transitions
Potential sales of the company

Clear records become particularly important when preparing a business for another owner.

A successor, buyer, lender, or professional valuator needs to understand what the business owns, what it owes, how much it earns, and how consistently it performs.

The easier it is to understand the company financially, the easier it may be to make informed decisions about its future.

Build Wealth Outside the Business Too

Entrepreneurs often reinvest heavily in their companies.

That may help a business grow, but it can also create a situation where a large portion of the owner’s wealth is concentrated in one asset: the company itself.

Retirement planning can help diversify the owner's long-term financial resources.

The IRS recognizes several retirement-plan options that may be available to small businesses and self-employed individuals, including:

SEP plans
SIMPLE IRA plans
401(k) plans
Profit-sharing plans
Defined benefit plans

A SEP can be established by a business of any size, including a self-employed individual.

A 401(k) allows employee salary deferrals and may also allow employer contributions, while profit-sharing and defined benefit plans operate under different rules and funding structures.

The right option depends on factors such as the size of the business, number of employees, compensation, desired contribution levels, administrative responsibilities, and the owner's retirement goals.

For 2026, for example, the maximum employer contribution to a SEP is generally limited to the lesser of 25% of eligible compensation or $72,000, subject to the plan rules and applicable compensation limits.

Business owners should evaluate retirement planning as part of an overall wealth strategy rather than assuming that selling the company one day will provide everything they need.

Create a Succession Plan Before It Becomes an Emergency

Many small and family-owned businesses depend heavily on the founder.

The founder may maintain the key client relationships, approve financial decisions, manage employees, negotiate contracts, and hold much of the institutional knowledge.

That creates a vulnerability.

What happens if the founder unexpectedly becomes ill?
Who can sign documents?
Who manages the employees?
Who owns the business after the founder dies?
What if two family members believe they should be in charge?

Succession planning is designed to answer those questions before a crisis occurs.

A thoughtful business succession plan may address:

Who will manage the company
Who will eventually own it
Whether ownership will remain in the family
How ownership interests may be sold or transferred
How departing owners will be compensated
How the company will be valued
What happens after death or disability
Whether key employees have a role in the transition
How disputes among owners or heirs may be handled

For Black-owned family businesses, succession planning can be particularly meaningful when the goal is to preserve a business that represents years or even generations of work.

However, transferring ownership is only one part of succession.

Future leaders also need preparation.

A child or relative who receives ownership without understanding the company’s finances, customers, obligations, and operations may not be positioned to protect what was built.

A sustainable succession plan transfers both ownership and knowledge.

Understand the Tax Consequences Before Transferring Ownership

A business can be transferred in several ways.

An owner might:

Sell to an outside buyer
Sell to another owner
Transfer ownership to family members
Gift business interests during life
Transfer ownership through an estate
Use a trust or other planning arrangement

These options can produce very different legal and tax consequences.

For example, when an entire business is sold, the IRS generally does not treat the transaction as the sale of one single asset. Instead, the individual business assets are generally treated separately for purposes of calculating gain or loss.

Inventory, depreciable property, real estate, goodwill, and other assets may receive different tax treatment.

The allocation of the purchase price can therefore matter significantly to both the seller and the buyer.

Business owners considering a sale should understand the potential tax consequences before agreeing to a transaction structure.

Be Careful When Gifting Business Interests

Some business owners want to transfer part of the company to children or other family members during their lifetime.

That can be part of a broader succession strategy, but the gift-tax rules should be considered first.

For calendar year 2026, the federal annual gift-tax exclusion is $19,000 per recipient for qualifying present-interest gifts.

The federal basic exclusion amount for estate and gift tax is $15 million for 2026.

A gift above the annual exclusion does not necessarily mean that gift tax must immediately be paid.

However, depending on the facts, it may require the donor to file Form 709 and may use part of the donor's available lifetime basic exclusion after accounting for applicable exclusions and deductions.

This is particularly important when gifting ownership interests in a valuable closely held business.

The value assigned to those interests matters.

Significant transfers should therefore be carefully documented and, when appropriate, supported by a qualified valuation.

Maryland Estate Tax Can Matter Before Federal Estate Tax Does

Maryland business owners also need to consider state-level estate taxation.

For deaths occurring in 2019 and later, Maryland's estate-tax filing threshold is $5 million.

By comparison, the federal basic exclusion amount for individuals dying in 2026 is $15 million.

That means Maryland estate-tax planning can become relevant at a significantly lower estate value than the federal estate-tax threshold.

For successful business owners, this matters because the value of a business interest can contribute substantially to the value of the owner's estate.

A business that began modestly but became highly successful may eventually represent millions of dollars in value.

Owners should therefore avoid assuming that estate-tax planning is only relevant to extremely wealthy families.

For Maryland residents with valuable businesses, real estate, investments, retirement accounts, insurance, and other assets, reviewing the total estate can be important.

Maryland Also Has an Inheritance Tax

Maryland's inheritance tax is separate from its estate tax.

For decedents dying on or after July 1, 2000, property passing to certain close relatives is generally exempt from Maryland inheritance tax.

Those exempt recipients include, among others:

Spouses
Children and other lineal descendants
Spouses of children or other lineal descendants
Parents
Grandparents
Stepchildren
Stepparents
Siblings
Certain corporations owned by qualifying relatives

Property passing to other individuals may be subject to a 10% Maryland inheritance tax.

That distinction can become relevant when an owner intends to leave business interests to people outside the immediate family.

The appropriate strategy depends on the beneficiary, type of asset, ownership structure, and complete estate plan.

Coordinate the Succession Plan With the Estate Plan

A business succession plan should not operate separately from the owner's estate plan.

Business governing documents, buy-sell agreements, trusts, wills, powers of attorney, and other estate-planning documents should be coordinated so they do not produce conflicting outcomes.

Consider a family business with three children. One child works in the business full time and has spent years learning how to operate it. The other two have completely different careers. Simply leaving one-third of the business to each child may produce shared ownership between people with very different interests, levels of involvement, and financial goals. That may be exactly what some families want. For others, it may create conflict. The important point is that the result should be intentional.

An integrated estate and succession plan may address:

Who will own the business
Who will control or manage it
What happens to the ownership interest at death
How nonparticipating heirs are treated
How the business will be valued
Whether ownership can be sold outside the family
What happens if the intended successor does not want the business

The estate plan and business documents should support the same overall objective.

Know What the Business Is Worth

Business valuation is another important part of generational wealth planning.

Owners often know the company's annual revenue or profit but may not know what the business itself is worth.

Those are different numbers.

Understanding business value can be useful when planning for:

A sale
Retirement
Ownership transfers
Gifts
Estate planning
Buy-sell agreements
Insurance needs
Family succession

Valuation becomes particularly important when the business represents a substantial percentage of the owner's estate.

Imagine that an owner believes the company is worth $800,000, but a professional valuation shows that its fair market value is several million dollars.

That difference could materially change the owner's succession and estate-planning strategy.

Valuation should therefore be addressed before a major transaction—not after one has already occurred.

Prepare the Next Generation to Manage Wealth

Generational wealth is not created simply because an asset passes from parent to child.

The next generation also needs the knowledge to manage what they receive.

For family businesses, that can mean gradually involving future leaders in:

Financial reporting
Operations
Client relationships
Strategic planning
Legal responsibilities
Tax planning
Employment decisions
Long-term investment decisions

Some family members may eventually become business operators.

Others may become owners without participating in daily management.

Those roles should be clearly understood.

The goal is not to force the next generation into the family company. It is to create a thoughtful plan for ownership, leadership, and wealth management based on the family's actual circumstances.

Start Generational Wealth Planning Before the Transition

One of the most important principles of succession planning is simple:

Do not wait until the transition has already begun.

An owner preparing to retire next month has fewer planning opportunities than an owner who starts thinking about succession years in advance.

For Black-owned businesses in Maryland, useful questions may include:

Is our business structure still appropriate for our current size and future goals?
Are our financial records organized enough to demonstrate the company's value?
Are we planning for taxes before major transactions occur?
Have we built retirement assets outside the business?
Who could manage the company if the founder became unavailable tomorrow?
Who should ultimately own the business?
Have future owners or leaders been prepared for their roles?
Do our estate-planning documents and business agreements support the same outcome?
Could Maryland estate tax affect the family even if federal estate tax does not?

The answers to these questions can evolve as the company grows.

That is why business succession and estate planning should be reviewed periodically instead of treated as a one-time project.

Build the Business. Protect the Value. Prepare the Legacy.

A thriving Black-owned business can create far more than current income.

It can create employment, fund education, support families, invest in communities, build retirement security, and become an asset that continues creating opportunity long after its founder steps away.

But transforming business success into generational wealth requires deliberate planning.

For Maryland business owners, that may mean coordinating:

Business structure
Tax planning
Financial recordkeeping
Retirement planning
Business valuation
Ownership transfers
Succession planning
Estate planning

The earlier those pieces are considered together, the easier it may be to identify risks and make informed decisions about the future.

Building the business is the first step. Protecting its value and preparing the next generation is how that success can become a lasting legacy.

The Law Offices of Beverly Winstead assists Maryland business owners with business, tax, and estate matters that may intersect throughout the life of a company.

Contact the Law Offices of Beverly Winstead to discuss a strategy tailored to your business, family, and long-term goals.

This article is provided for general informational purposes only and does not constitute legal or tax advice. Federal and Maryland tax laws are subject to change, and the consequences of any business, tax, succession, or estate-planning strategy depend on the specific facts and circumstances.

LLC vs. S-Corp in Maryland: Which Business Structure May Save You More on Taxes?

2026-07-27T19:55:23Z

Choosing the right business structure is one of the most important decisions a Maryland business owner can make. It can affect taxes, payroll, paperwork, liability protection, business growth, and even how easy it is to bring in partners or sell the business later. But one of the most common questions business owners ask is also one of the most misunderstood: “Should I be an LLC or an S-Corp to save money on taxes?” The answer is not as simple as choosing one label over the other. In fact, LLCs and S-Corps are not always direct opposites. An LLC is a legal business structure created under state law. An S-Corp is a federal tax election. In some cases, a Maryland LLC may choose to be taxed as an S-Corp if it meets the eligibility requirements. That means the better question is not always “LLC or S-Corp?” The better question is: “How should my business be structured and taxed based on my income, expenses, payroll needs, and long-term goals?” For Maryland small business owners, the right answer depends on the facts.

First, What Is an LLC?

A limited liability company, or LLC, is a business entity formed under state law. Many small business owners choose LLCs because they can offer liability protection, management flexibility, and relatively simple administration compared to some corporate structures. For federal tax purposes, however, an LLC does not have one automatic tax identity in every situation. A single-member LLC is generally treated as a disregarded entity by default, meaning the business income is usually reported on the owner’s personal tax return. A multi-member LLC is generally treated as a partnership by default unless it makes a different tax election. An LLC may also elect to be taxed as a corporation. If it qualifies, it may elect S-Corp tax treatment. This is why business owners should be careful when comparing an LLC and an S-Corp. In many cases, the question is not whether to “be” an LLC or “be” an S-Corp. The question may be whether an LLC should keep its default tax treatment or elect to be taxed as an S-Corp.

What Is an S-Corp?

An S-Corp is not simply a different type of paperwork at the state level. It is a tax election that allows qualifying corporations, and in some cases qualifying LLCs, to pass income, losses, deductions, and credits through to shareholders for federal tax purposes. With an S-Corp, the business generally does not pay federal income tax in the same way a C-Corporation does. Instead, income and losses pass through to the shareholders, who report them on their personal tax returns. This pass-through treatment can help avoid the classic “double taxation” associated with C-Corporations. For many small business owners, the S-Corp conversation becomes attractive because of payroll and self-employment tax planning. But this is exactly where careful planning matters.

The Main Tax Difference: Self-Employment Tax vs. Payroll Tax

For many default LLC owners, business profit may be subject to income tax and self-employment tax. Self-employment tax generally covers Social Security and Medicare taxes. With an S-Corp, an owner who works in the business is typically treated as a shareholder-employee. That means the business should pay that owner reasonable compensation for the services they provide. That salary is subject to payroll taxes. After reasonable wages are paid, remaining profits may be distributed to the shareholder. Those distributions are generally not treated the same way as wages for employment tax purposes. This is where potential tax savings may arise. However, this does not mean an owner can simply take little or no salary and classify most income as distributions. The IRS pays attention to reasonable compensation. If a shareholder performs services for the business, compensation should generally reflect the work performed, the role, the industry, the time involved, and the value of the services. An S-Corp strategy that ignores reasonable compensation can create risk. The tax savings are not about avoiding payroll taxes entirely. They are about properly separating reasonable wages from potential distributions when the facts support it.

Does an S-Corp Always Save More?

No. An S-Corp does not automatically save money for every Maryland business owner. An S-Corp may be worth considering when the business is consistently profitable, the owner is taking money out of the business, and there is enough profit remaining after paying a reasonable salary to justify the extra payroll, tax filing, bookkeeping, and compliance costs. For a newer business with modest profits, an S-Corp election may create more complexity than benefit. Payroll setup, payroll tax filings, separate business tax returns, accounting support, and reasonable compensation analysis all add administrative responsibilities. For example, if a business owner’s net profit is still low or inconsistent, the potential employment tax savings may not outweigh the added costs. But if the business has grown and consistently produces income beyond what would be considered reasonable owner compensation, an S-Corp review may make sense. This is why business structure planning should not be based on a social media tip or a one-size-fits-all rule. It should be based on actual numbers. If this decision is part of a larger mid-year review, you may also want to read our related article: “It’s Not Too Late to Fix Your 2026 Tax Situation: What You Can Still Do Mid-Year.”

Maryland Tax Considerations

Maryland business owners need to think beyond federal taxes. S-Corps, LLCs, and partnerships are generally treated as pass-through entities for Maryland income tax purposes. This means income passes through to the owners, members, partners, or shareholders, who may then report the income on their applicable Maryland returns. Maryland pass-through entities may have their own filing requirements. Depending on the situation, a pass-through entity may file Maryland Form 510 or, if making an entity-level election, Form 511. Maryland also has rules involving nonresident members and electing pass-through entity taxes. This is important because an S-Corp election does not make Maryland income tax disappear. Salary paid to an owner may still be taxable. Pass-through income may still be taxable. Local tax considerations may also matter depending on where the owner lives or does business. A business owner should not assume that federal payroll tax planning automatically creates the same result for Maryland tax purposes. Federal, state, and local consequences should be reviewed together.

The Compliance Side of an S-Corp

The potential benefit of an S-Corp comes with additional responsibility. A business taxed as an S-Corp typically needs payroll if the owner works in the business. That means withholding, payroll tax deposits, employment tax returns, W-2 reporting, and careful documentation. The business also needs to maintain clear books and records showing salary, distributions, expenses, and business activity. This is especially important because S-Corp mistakes can create tax problems later. Common issues include failing to pay reasonable compensation, mixing personal and business expenses, poor bookkeeping, late payroll tax deposits, and misunderstanding the difference between salary and distributions. The more complex the structure, the more important it becomes to maintain clean records. For more on how documentation and reporting issues can create IRS questions, read our related article: “What Triggers an IRS Audit? Common Red Flags for Small Business Owners.”

The Simplicity of a Default LLC

For many small businesses, a default LLC remains practical. A single-member LLC may be easier to administer than an S-Corp. There may be fewer payroll obligations if the owner is not treated as an employee of the business for tax purposes. The owner may still benefit from liability protection under state law, while keeping tax reporting relatively straightforward. A default LLC may be especially suitable for a business that is just starting, has inconsistent income, reinvests most profits back into the business, or does not yet generate enough income to make S-Corp tax planning worthwhile. That does not mean the LLC should never revisit the question. A structure that works in year one may not be ideal in year three or year five. As income grows, the business owner may need to reevaluate whether the current structure still fits.

When an S-Corp May Be Worth Reviewing

An S-Corp may be worth discussing if:

The business has consistent profits.
The owner is actively working in the business.
The business can afford to run payroll properly.
There is profit left after paying reasonable compensation.
The owner wants to separate salary from potential distributions.
The business has reliable bookkeeping.
The owner is ready for additional compliance responsibilities.

The decision should be made carefully. A business owner should review projected income, expenses, owner compensation, payroll costs, tax preparation costs, retirement planning, Maryland tax obligations, and future business goals. In other words, the question is not only “Will this save taxes?” It is also “Can the business support the structure correctly?”

When an S-Corp May Not Be the Best Fit

An S-Corp may not be the best choice if the business has low or unpredictable profits, the owner does not want to manage payroll, bookkeeping is not organized, or the cost of compliance would outweigh the expected tax savings. It may also be a poor fit if the owner is choosing it only because they heard it “saves taxes” without understanding the salary requirement, payroll responsibilities, or eligibility rules. For some businesses, the right move is to remain an LLC and improve bookkeeping, estimated tax planning, and deduction strategy first. For others, the right move may be to elect S-Corp treatment after the business reaches a more stable income level. Business structure is not just a tax issue. It is a planning issue.

Do Not Use an S-Corp to Ignore Existing Tax Problems

If a business owner is already behind on taxes, has unfiled returns, owes payroll taxes, or has received IRS notices, changing the business structure may not solve the underlying issue. A new tax election does not erase old tax balances. It does not automatically fix missing filings. It does not remove penalties or interest. It may be part of a forward-looking plan, but existing tax problems usually need to be addressed directly. If you are already dealing with an unresolved balance, read: “What Happens If You Can’t Pay Your Taxes in Full?” If you are behind and need to regain control, you may also find this helpful: “Behind on Taxes in Maryland? Here’s How to Regain Control Fast.”

The Real Question: What Fits Your Business Now?

The best structure for a Maryland business owner depends on where the business is today and where it is going. An LLC may offer simplicity and flexibility. An S-Corp election may offer tax planning opportunities in the right circumstances. But neither option is automatically better for every business. The right decision should consider:

How much profit the business generates
How much the owner should reasonably be paid
Whether the business can manage payroll
Whether bookkeeping is current
Whether there are employees or contractors
Whether the business has tax debt or unfiled returns
Whether Maryland pass-through entity rules apply
Whether the owner plans to grow, sell, or bring in partners

A business structure should support the business, not create confusion.

Final Thought

For Maryland business owners, the LLC vs. S-Corp decision should not be rushed. The potential tax savings can be meaningful in the right situation, but the wrong election can create extra costs, payroll problems, and compliance risk. Before choosing a structure or changing how your business is taxed, it is important to review the full picture. That includes federal taxes, Maryland taxes, payroll obligations, reasonable compensation, recordkeeping, and long-term business goals. If you are unsure whether your LLC should remain under its current tax treatment or whether an S-Corp election may make sense, schedule a call with Beverly Winstead. Beverly can help you review your situation, understand your options, and approach the decision with a clear tax strategy. This article is for general informational purposes only and should not be considered legal or tax advice. Every business owner’s situation is different.

Frequently Asked Questions About LLCs and S-Corps in Maryland

Is an LLC the same thing as an S-Corp?

No. An LLC is a legal business structure formed under state law. An S-Corp is a tax election. In some cases, an LLC may choose to be taxed as an S-Corp if it meets the eligibility requirements.

Does an S-Corp always save more money on taxes?

No. An S-Corp does not automatically save money for every business owner. The potential benefit depends on the business’s profit, owner compensation, payroll costs, tax filing costs, and overall compliance responsibilities.

Why do some business owners choose S-Corp taxation?

Some business owners consider S-Corp taxation because it may allow them to separate reasonable wages from shareholder distributions. This can create tax planning opportunities in the right situation, but the owner must still be paid reasonable compensation for services provided to the business.

What does “reasonable compensation” mean for an S-Corp owner?

Reasonable compensation means the owner’s salary should reflect the work they perform for the business. Factors may include the owner’s role, duties, hours worked, industry standards, business revenue, and the value of the services provided. An owner should not simply take little or no salary in order to treat most income as distributions.

Is a default LLC simpler than an S-Corp?

In many cases, yes. A default LLC may involve fewer payroll and administrative requirements than an S-Corp. This can make it a practical option for newer businesses, businesses with inconsistent income, or owners who are not yet ready for the added compliance responsibilities of S-Corp taxation.

When should a Maryland LLC consider an S-Corp election?

A Maryland LLC may want to review S-Corp taxation when the business has consistent profits, reliable bookkeeping, enough income to pay the owner a reasonable salary, and profit remaining after that salary. The decision should be based on actual numbers, not a general rule.

Does an S-Corp eliminate Maryland taxes?

No. An S-Corp election does not make Maryland taxes disappear. Maryland business owners may still have state filing obligations, pass-through income considerations, payroll responsibilities, and possible local tax issues depending on their situation.

Can I switch from an LLC to S-Corp taxation anytime?

There are timing rules and eligibility requirements for making an S-Corp election. Business owners should review the deadlines, tax consequences, and administrative requirements before making the election.

Should I choose an S-Corp if I already owe taxes?

Changing your business tax structure does not erase existing tax debt, unfiled returns, penalties, or IRS notices. If you already have tax problems, those issues should be addressed directly as part of a broader tax strategy.

How do I know which structure is right for my business?

The right structure depends on your income, expenses, owner compensation, payroll needs, growth plans, recordkeeping, and Maryland tax obligations. Before choosing or changing your business structure, it is wise to review the full picture with a tax professional.

Can Beverly Winstead help me decide between an LLC and an S-Corp?

Yes. If you are unsure whether your Maryland business should remain under its current structure or consider S-Corp taxation, schedule a call with Beverly Winstead to discuss your situation, review your options, and make a more informed tax planning decision. This information is for general educational purposes only and should not be considered legal or tax advice. Every business owner’s situation is different.

What Triggers an IRS Audit? Common Red Flags for Small Business Owners

2026-07-08T19:14:05Z

For many small business owners, few words create more stress than “IRS audit.” Even when a business owner has tried to do everything correctly, receiving an IRS letter can feel overwhelming. The good news is that an audit does not automatically mean someone has done something wrong. The IRS selects returns for review in several ways, including computer screening, document matching, random selection, and sometimes because of issues connected to another taxpayer’s return. Still, certain patterns on a tax return can create questions. For small business owners, those questions often involve income reporting, deductions, payroll tax obligations, business losses, or records that do not clearly support what was filed. The most important thing to understand is this: an audit is not just about numbers. It is about whether the numbers on a tax return can be explained, documented, and connected to the business. Below are common areas that may draw IRS attention and what small business owners should keep in mind.

1. Income That Does Not Match IRS Records

One of the most common sources of IRS scrutiny is a mismatch between the income reported on a tax return and the income reported to the IRS by third parties. Small business owners may receive Forms 1099-NEC, 1099-K, 1099-MISC, W-2, or other income-related forms depending on how they are paid. Payment processors, online marketplaces, clients, and employers may also send copies of certain forms to the IRS. If the IRS receives information showing that a business earned income but that income does not appear to be reported properly on the return, it may generate a notice or further review. This can happen for many reasons. A form may have been issued incorrectly. A business owner may have received a 1099-K that includes both business and personal transactions. A client may send a form to the wrong taxpayer identification number. Or the business owner may simply overlook a form while preparing the return. The issue is not always intentional. However, it still needs to be addressed carefully. Business owners should compare bank records, accounting software, invoices, merchant processor reports, and all tax forms before filing. If you recently received IRS correspondence related to income or balances owed, you may also want to read our related article: “What Happens If You Can’t Pay Your Taxes in Full?”

2. Large or Unusual Deductions

Business deductions are a normal part of filing a tax return. Small businesses are generally allowed to deduct ordinary and necessary expenses connected to carrying on a trade or business. However, deductions should make sense in the context of the business. A deduction may raise questions when it appears unusually large compared to the income reported, inconsistent with the type of business, or not clearly supported by records. For example, a small consulting business claiming very high travel, meals, or vehicle expenses may need to show how those expenses were directly connected to business activity. The key issue is not whether a deduction is “big.” The issue is whether it is legitimate, properly categorized, and documented. A business owner should be able to explain what the expense was, why it was business-related, when it occurred, and how it connects to the income-producing activity. This is where many small businesses run into trouble. They may have valid expenses but weak documentation. Receipts may be missing. Business and personal charges may be mixed together. Credit card statements may show the payment but not the business purpose. In an audit, vague explanations are rarely as helpful as organized records.

3. Mixing Business and Personal Expenses

Small business owners often start lean. In the early stages, it is common to use the same phone, car, computer, or even bank account for both business and personal purposes. But from a tax perspective, blurred lines can create problems. Personal, living, or family expenses are generally not deductible as business expenses. If personal expenses are reported as business deductions, the IRS may challenge them. Even when an expense has both business and personal elements, the business portion should be carefully determined and documented. For example, if a vehicle is used for both personal errands and business appointments, the taxpayer should have records showing the business use. If a cell phone is used for both personal and business calls, the business portion should be reasonable and supportable. If a credit card includes both business supplies and personal purchases, the records should separate the two clearly. Keeping separate business and personal accounts is not just a bookkeeping preference. It can make it easier to prepare accurate returns, support deductions, and respond if questions arise later. For more on why tax issues often become harder when delayed, read: “Why Summer Is When IRS Problems Quietly Get Worse.”

4. Home Office Deduction Issues

The home office deduction is a legitimate deduction for qualifying taxpayers, but it is also an area where details matter. Generally, a portion of the home must be used regularly and exclusively for business. In many cases, the space must also be the principal place of business, a place where the taxpayer meets with clients or customers, or a separate structure used in connection with the business. The word “exclusively” is important. A room used as both a guest room and an office may not meet the same standard as a dedicated workspace used only for business. A kitchen table where business work happens occasionally may not qualify in the same way as a clearly defined office area used regularly for business operations. The home office deduction should not be avoided simply out of fear if the taxpayer truly qualifies. But it should be claimed carefully. Business owners should understand the rules, measure the space accurately, and keep records showing how the space is used.

5. Repeated Business Losses

A business can lose money. Startups, seasonal businesses, and businesses facing unusual circumstances may have legitimate losses. However, repeated losses over multiple years can invite questions about whether the activity is truly being operated as a business or whether it is closer to a hobby. The IRS looks at facts and circumstances when distinguishing a business from a hobby. No single factor controls the answer. Relevant considerations may include whether the taxpayer carries on the activity in a businesslike manner, whether they maintain complete and accurate books, whether they depend on the income, whether they change methods to improve profitability, and whether there is a genuine profit motive. This issue can be especially important for creative professionals, consultants, side businesses, online sellers, and service providers who are building a business while also earning income elsewhere. The question is not simply, “Did the business make money this year?” The better question is, “Can the owner show that the activity is operated with a real business purpose and a plan for profit?”

6. Payroll Tax Problems

For businesses with employees, payroll taxes are one of the most serious compliance areas. Employers are responsible for withholding income tax, Social Security tax, and Medicare tax from employee wages and depositing those amounts properly. These withheld amounts are often referred to as trust fund taxes because the employer is holding money that belongs to the government. If those funds are not deposited, the IRS can treat the issue very seriously. In some cases, responsible individuals may face personal liability through the Trust Fund Recovery Penalty. Payroll tax problems can arise when cash flow is tight and a business owner uses withheld taxes to cover rent, vendors, payroll, or other operating costs. While the pressure may feel understandable, the consequences can be significant. If your business is behind on payroll taxes or other IRS balances, it is important to seek guidance before the issue escalates. You may also want to read: “Behind on Taxes in Maryland? Here’s How to Regain Control Fast.”

7. Estimated Tax Payment Problems

Many small business owners are surprised to learn that taxes are generally paid throughout the year, not only when a return is filed. Self-employed individuals, sole proprietors, partners, and certain shareholders may need to make estimated tax payments. When business income increases but estimated payments are not adjusted, the taxpayer may end up with a larger balance due than expected. This does not always trigger an audit by itself, but it can lead to penalties, notices, and financial pressure. Estimated tax planning is especially important for business owners with changing income, new contracts, seasonal revenue, or a major shift in profitability. A mid-year review can help business owners avoid surprises and plan ahead. For related planning ideas, see: “It’s Not Too Late to Fix Your 2026 Tax Situation: What You Can Still Do Mid-Year.”

8. Cash-Heavy Business Activity

Businesses that receive a significant amount of cash should be especially careful with records. Cash income is taxable, just like payments received by check, credit card, or electronic transfer. The challenge is that cash can be harder to trace if the business does not maintain consistent records. Restaurants, salons, contractors, repair services, event vendors, retail shops, and other cash-intensive businesses should have systems in place for tracking receipts, deposits, refunds, tips, and expenses. Good records help show that income was reported accurately. They also help explain differences between gross receipts, bank deposits, merchant reports, and taxable income. A cash business does not need to fear its own business model. But it does need reliable systems.

9. Vehicle, Travel, and Meal Expenses Without Clear Support

Vehicle, travel, and meal expenses are common for many businesses, but they are also frequently misunderstood. The fact that an expense occurred while a business owner was working does not automatically make the entire amount deductible. For vehicle expenses, business owners should be able to show business mileage or actual business use. For travel, the business purpose should be clear. For meals, the records should identify the business connection and comply with the applicable rules. A calendar, mileage log, receipts, appointment records, invoices, and notes about business purpose can all help support these deductions. Waiting until months later to recreate records from memory is risky and often incomplete.

10. Poor or Incomplete Records

At the center of many audit problems is one simple issue: records. The IRS does not only look at what was claimed. It may ask the taxpayer to support what was claimed. If records are missing, inconsistent, or disorganized, even a legitimate deduction can become difficult to defend. Small business owners should keep records that show income, expenses, assets, liabilities, payroll, bank activity, and tax filings. The exact records needed depend on the business, but the principle is the same: the return should be supported by documents, not guesswork. Good records also help business owners make better decisions. They make it easier to know whether the business is profitable, whether estimated taxes need to be adjusted, whether pricing needs to change, and whether the business structure still makes sense.

What Should You Do If You Are Worried About an Audit?

First, do not panic. An IRS letter or audit notice does not automatically mean the IRS believes fraud occurred. It may mean the IRS needs more information, clarification, or documentation. Second, do not ignore the notice. Deadlines matter. Waiting too long can limit your options and make the situation more stressful. Third, gather records before responding. Review the notice carefully and identify exactly what the IRS is asking for. A focused response is usually better than sending disorganized documents that do not answer the question. Finally, consider getting professional guidance, especially if the issue involves several tax years, payroll taxes, unfiled returns, large balances, business deductions, or potential collection action.

Final Thought

The goal for small business owners should not be fear-based tax compliance. The goal should be clarity. When income is reported accurately, deductions are supported, payroll taxes are handled properly, and records are organized, a business owner is in a stronger position. Not every IRS question can be prevented. But many problems become easier to address when the business has treated tax compliance as part of its regular operations, not just a once-a-year filing task. If you are concerned about your business records, deductions, IRS notices, or possible audit exposure, you do not have to wait until a problem escalates. Schedule a call with Beverly Winstead to discuss your situation, review your options, and take a more proactive approach to protecting your business. This article is for general informational purposes only and should not be considered legal or tax advice. Every taxpayer’s situation is different.

Frequently Asked Questions About IRS Audits and Small Businesses

Does an IRS audit mean I did something wrong?

No. Being selected for an IRS audit does not automatically mean that you did something wrong or that the IRS believes fraud occurred. In some cases, the IRS may simply need more information, clarification, or documentation to support items reported on a tax return.

What is the most common reason a small business may receive IRS questions?

One common issue is income that does not match information reported to the IRS by third parties. For example, if a client, payment processor, or platform reports income on a tax form, but the business return does not clearly reflect that income, the IRS may send a notice or request additional information.

Can large business deductions trigger an audit?

Large deductions do not automatically trigger an audit. However, deductions that seem unusual for the type of business, are high compared to reported income, or are not supported by records may raise questions. Business owners should be prepared to show that expenses were ordinary, necessary, and connected to the business.

Is the home office deduction risky?

The home office deduction is legitimate when the taxpayer qualifies. The concern is not the deduction itself, but whether the space meets the required standards and whether the business owner can support the claim. Generally, the area should be used regularly and exclusively for business purposes.

What records should small business owners keep in case of an audit?

Small business owners should keep records that support income, expenses, deductions, payroll, bank activity, invoices, receipts, mileage, contracts, and tax filings. The exact records needed depend on the business, but the goal is to be able to explain and document the numbers reported on the tax return.

Can repeated business losses create IRS concerns?

Repeated business losses may lead to questions about whether the activity is being operated as a true business or more like a hobby. This does not mean every business loss is a problem. Many legitimate businesses experience losses, especially in the early years. The important question is whether the activity is carried on with a real profit motive and businesslike records.

What should I do if I receive an IRS audit notice?

Do not ignore it. Read the notice carefully, identify the deadline, and gather the specific records requested. Avoid sending incomplete or disorganized information. If the notice involves business deductions, payroll taxes, unfiled returns, multiple tax years, or a large balance, it may be wise to speak with a tax attorney before responding.

Can Beverly Winstead help if my business is facing IRS questions?

Yes. If you are concerned about an IRS notice, audit risk, business deductions, payroll tax issues, or unresolved tax balances, schedule a call with Beverly Winstead to discuss your situation and explore your options. This information is for general educational purposes only and should not be considered legal or tax advice. Every taxpayer’s situation is different.

It’s Not Too Late to Fix Your 2026 Tax Situation: What You Can Still Do Mid-Year

2026-06-29T10:36:38Z

For many individuals and business owners, tax planning becomes an afterthought once filing season ends. After the April deadlines pass, people often shift their focus toward work, family responsibilities, vacations, or other financial priorities. But one of the biggest misconceptions I see is the belief that tax planning only matters during tax season. In reality, mid-year is often one of the most important times to evaluate your financial situation and make strategic adjustments before the end of the year arrives. At the Law Offices of Beverly Winstead, we regularly work with clients who assume they have already missed their opportunity to improve their tax situation for the current year. Fortunately, that is not always the case. Depending on your circumstances, there may still be valuable opportunities to reduce financial stress, improve organization, address IRS concerns, and make more informed tax decisions before 2026 comes to a close.

Why Mid-Year Tax Planning Matters

By the middle of the year, many taxpayers have a clearer understanding of:

income trends,
business performance,
major expenses,
investment activity,
and overall financial direction.

This makes mid-year an ideal time to reassess your tax position and determine whether adjustments may be necessary. Waiting until the final weeks of the year often creates unnecessary pressure and limits flexibility. Proactive planning earlier allows more time to:

organize records,
correct mistakes,
evaluate strategies,
and prepare for upcoming obligations.

For business owners and self-employed individuals especially, mid-year reviews can help identify financial issues before they become significantly larger problems later.

Review Your Current Tax Situation

One of the most important first steps is simply understanding where you currently stand. Many taxpayers avoid reviewing their financial position because they fear what they may discover. However, clarity is essential for making informed decisions. Mid-year is a good time to review:

current income,
estimated tax payments,
withholding amounts,
business revenue,
deductible expenses,
retirement contributions,
and any outstanding IRS balances or notices.

Even small adjustments made during the second half of the year may help improve your overall financial position by year-end.

Do Not Ignore IRS Notices or Unresolved Tax Issues

If you currently owe the IRS or have unresolved tax matters, delaying action may increase financial stress over time. In many situations, penalties and interest generally continue accruing on unpaid balances until the matter is resolved. Additionally, ignoring IRS notices can sometimes limit available resolution options later. This does not mean every tax issue becomes severe or unmanageable. However, proactive communication and strategic planning are typically more beneficial than avoidance. Many taxpayers are surprised to learn that the IRS offers multiple resolution pathways depending on individual financial circumstances. Depending on eligibility, options may include:

installment agreements,
temporary collection relief,
or other structured resolution programs.

The appropriate strategy depends on factors such as:

income,
assets,
filing compliance,
and overall ability to pay.

Because every financial situation is different, individualized evaluation is important before choosing a path forward.

Organize Financial Records Before Year-End

One of the most common problems taxpayers face during filing season is disorganized financial documentation. Mid-year is an excellent time to:

review bookkeeping,
organize receipts and records,
reconcile business accounts,
track deductible expenses,
and ensure important financial documents are properly maintained.

For business owners, proper organization can also improve:

cash flow visibility,
budgeting,
and overall financial decision-making.

Waiting until tax season to gather records often increases stress and creates a higher likelihood of errors or overlooked information.

Business Owners Should Reevaluate Their Tax Strategy

For small business owners and self-employed individuals, mid-year is often the best time to evaluate whether the current business structure and tax strategy still make sense. Business income can fluctuate significantly throughout the year, and what worked previously may no longer be the most efficient approach moving forward. Depending on the circumstances, business owners may benefit from reviewing:

estimated tax payments,
payroll structure,
retirement planning,
deductible expenses,
or overall entity structure.

These conversations are especially important for growing businesses or individuals experiencing significant income changes. Strategic planning during the middle of the year can often create more flexibility than waiting until year-end deadlines approach.

Retirement Contributions May Still Help

Depending on your financial circumstances and eligibility requirements, retirement planning opportunities may also play an important role in year-end tax strategy. Certain retirement contributions may help reduce taxable income while simultaneously supporting long-term financial goals. Contribution rules and deadlines vary depending on the type of retirement account involved, which is why early planning is beneficial. Waiting until the final weeks of the year may reduce flexibility or create rushed financial decisions.

Financial Recovery Is a Process

For taxpayers who feel financially overwhelmed, it is important to understand that financial recovery rarely happens overnight. Many people enter the second half of the year carrying stress from:

tax debt,
business setbacks,
unfiled returns,
or unexpected financial obligations.

But avoiding these issues generally increases uncertainty rather than reducing it. In many situations, taking the first step toward understanding your options can create a sense of clarity and direction that helps reduce long-term stress. Financial recovery often begins with:

honest evaluation,
organization,
proactive planning,
and a realistic strategy moving forward.

It Is Not Too Late to Take Action

One of the most important things I want taxpayers to understand is this: mid-year is not too late. There is still time to:

improve financial organization,
address unresolved tax concerns,
review planning opportunities,
and position yourself more strategically before year-end arrives.

The earlier these conversations happen, the more flexibility taxpayers may have to make informed decisions rather than reactive ones. At the Law Offices of Beverly Winstead, we work closely with individuals, families, and business owners to help them evaluate their financial circumstances, understand available options, and create thoughtful strategies designed around long-term stability and peace of mind. If you would like guidance regarding tax planning, IRS concerns, or your overall financial strategy for the remainder of 2026, we invite you to schedule a confidential consultation with our office.

Why Summer Is When IRS Problems Quietly Get Worse

2026-06-29T10:27:14Z

For many taxpayers, the end of tax season brings a sense of relief. Returns have been filed, deadlines have passed, and people naturally want to move on from thinking about taxes altogether. But for individuals and business owners with unresolved tax issues, summer is often when financial problems quietly become more serious. The stress may temporarily fade after April, but IRS balances, notices, penalties, and unresolved filings do not simply disappear with time. In fact, delaying action during the middle of the year can often make a manageable situation far more difficult later. At the Law Offices of Beverly Winstead, we regularly speak with taxpayers who intended to “deal with it later,” only to discover months afterward that their situation had become more complicated, more expensive, and more stressful than expected.

Why People Delay Addressing IRS Problems

One of the most common reasons taxpayers avoid dealing with IRS issues is emotional exhaustion after tax season. Many people feel overwhelmed after filing their returns, especially if they:

owe more than expected,
have unfiled returns,
received IRS notices,
or are already experiencing financial strain.

Others assume there is nothing they can realistically do if they cannot immediately pay the balance in full. As a result, summer often becomes a period of avoidance. Notices go unopened. Deadlines pass. Financial planning gets postponed. Unfortunately, avoidance rarely improves an IRS situation.

Penalties and Interest May Continue Accruing

One important fact taxpayers should understand is that unpaid IRS balances generally continue accumulating penalties and interest until the debt is resolved. The IRS typically charges:

interest on unpaid taxes,
a failure-to-pay penalty for unpaid balances,
and, in some cases, additional penalties depending on the circumstances.

Over time, this can significantly increase the total amount owed. While every taxpayer’s situation is different, waiting several additional months to address a balance may reduce financial flexibility and increase long-term financial pressure. This is one reason why proactive action during summer months can be extremely important.

Ignoring IRS Notices Can Limit Your Options

Many taxpayers underestimate the importance of responding to IRS correspondence promptly. IRS notices often contain:

important deadlines,
requests for documentation,
payment options,
or warnings about potential collection activity.

Ignoring notices does not stop the IRS process from moving forward. Depending on the circumstances, unresolved tax matters can eventually lead to:

additional penalties,
tax liens,
levies,
wage garnishments,
or more aggressive collection actions.

Not every case progresses this far, but early intervention generally provides taxpayers with more opportunities to resolve issues strategically before matters escalate.

Summer Is Often the Best Time to Regroup Financially

Although many people think of tax planning as something that only happens during filing season, mid-year is often one of the most valuable times to reassess finances. Summer provides an opportunity to:

review current tax obligations,
organize financial records,
evaluate estimated tax payments,
address bookkeeping problems,
resolve unfiled returns,
and explore IRS resolution pathways before year-end pressure begins.

For business owners and self-employed individuals, this can be particularly important. By mid-year, many taxpayers have a clearer understanding of:

annual income trends,
business performance,
cash flow challenges,
and potential tax exposure.

This information can help guide smarter financial and tax decisions for the remainder of the year.

Many Taxpayers Have More Options Than They Realize

Another common misconception is that taxpayers only have one solution: paying the IRS balance immediately in full. In reality, the IRS offers several potential resolution pathways depending on a taxpayer’s financial condition and overall compliance status. Depending on eligibility, options may include:

installment agreements,
temporary collection relief,
Offer in Compromise programs,
penalty relief in qualifying situations,
or other structured resolution approaches.

However, qualification depends on multiple factors, including:

income,
assets,
filing compliance,
expenses,
and overall ability to pay.

This is why strategic evaluation matters before taking action. A resolution strategy that may work for one taxpayer may not be appropriate for another.

Waiting Until Year-End Often Creates Additional Stress

One pattern we frequently see is taxpayers postponing IRS issues throughout summer and fall, only to panic once the holidays and year-end deadlines approach. By that point:

balances may have increased,
notices may have escalated,
and fewer proactive planning opportunities may remain.

Addressing issues earlier in the year generally allows for:

better financial planning,
more thoughtful decision-making,
reduced emotional stress,
and greater preparation before the next filing season arrives.

Financial Recovery Begins With Action

Many taxpayers avoid addressing IRS concerns because they fear the situation is already beyond repair. In reality, taking the first step toward understanding your options is often one of the most important parts of the process. Financial recovery rarely happens overnight. It usually begins with:

understanding the situation clearly,
organizing financial information,
evaluating available options,
and creating a realistic strategy moving forward.

The earlier these conversations happen, the more opportunities taxpayers may have to regain financial control and reduce uncertainty.

A Strategic Approach Matters

IRS matters should never be approached with a one-size-fits-all mindset. Every financial situation is different, which is why careful review and individualized planning are important when addressing tax concerns. At the Law Offices of Beverly Winstead, we work closely with clients to:

evaluate their financial circumstances,
explain available IRS resolution options,
address compliance concerns,
and develop thoughtful strategies designed around long-term financial stability.

Summer may feel like a time to put tax stress aside, but for unresolved IRS issues, delaying action can quietly make problems more difficult over time. In many situations, proactive action now can help prevent significantly greater financial pressure later.

Mid-Year Reset: A New Season for Smarter Tax Planning

2026-06-29T10:23:40Z

When I sit down with clients in my office, especially around this time of year, I often hear a version of the same sentence: “I thought taxes were behind me.” It is an understandable assumption. You filed your return, you met the April deadline, and mentally, you are ready to move on. But from a legal and strategic standpoint, this is not the end of your tax story for the year. In many ways, it is the beginning of the most important phase. Tax planning is not something that should happen in April. By then, most of the decisions that shape your tax outcome have already been made. Income has been earned, expenses have been incurred, and opportunities—some of them significant—may already be out of reach. This is why I often refer to this period as a “mid-year reset.” It is a second opportunity. A new season. And for many taxpayers, it is the moment where we can shift from reacting to planning. Over the years, I have seen a clear pattern. Individuals and business owners come to me frustrated, not necessarily because they did something wrong, but because they did not have a strategy in place early enough. They are surprised by what they owe. They are unsure why their tax liability looks the way it does. And perhaps most importantly, they feel like they had no control over the outcome. The truth is, in many cases, they could have had control. But control in tax matters requires timing. Mid-year is where timing works in your favor. At this point in the year, we have enough information to understand where you are heading financially, but we also still have time to influence that direction. That combination is powerful. It allows us to look at your income, your business activity, your financial decisions, and ask a very different question than the one asked during tax season. Not “What happened?” But “What can we still change?” For some clients, that conversation begins with something as straightforward as income. Perhaps their earnings have increased compared to last year, or the structure of their income has changed. This is especially common for self-employed individuals or those receiving 1099 income. Without proper adjustments, this can lead to underpayment issues or a larger balance due at the end of the year. For others, the issue is not income, but a lack of consistent planning around expenses and deductions. I often see situations where legitimate deductions are either missed or poorly documented, simply because there was no system in place. By the time April arrives, we are trying to reconstruct a year’s worth of financial activity instead of guiding it. And then there are the more complex scenarios, major financial decisions that carry tax consequences. The purchase or sale of property, the launch or restructuring of a business, significant investments. These are not just financial decisions; they are legal and tax decisions as well. When approached without planning, they can create unintended liabilities. When approached strategically, they can be structured in a way that aligns with your broader goals. This is where the role of a tax attorney becomes particularly important. Tax planning is not just about identifying deductions or reducing a number on a return. It is about understanding the law, anticipating how the IRS evaluates your financial position, and structuring your decisions accordingly. It is about creating a strategy that is both compliant and intentional. I often explain it this way: the IRS operates within a system. That system has rules, expectations, and mechanisms for evaluating taxpayers. When you understand that system, you are no longer reacting to it, you are navigating it. Unfortunately, many taxpayers fall into a cycle. Each year feels the same. The same stress, the same uncertainty, the same questions. “Why do I owe this much?” “How did it get to this point?” Without intervention, that cycle tends to repeat itself. A mid-year reset is how we interrupt that pattern. It allows us to step back, assess where you are, and make deliberate adjustments. Sometimes those adjustments are small but meaningful. Other times, they involve a broader shift in how your finances are structured. In either case, the goal is the same: to ensure that when the next tax season arrives, you are not caught off guard. Instead, you are prepared. This approach is particularly valuable for those with more complex financial situations, business owners, freelancers, high-income earners. But in reality, anyone who wants greater clarity and control over their taxes can benefit from it. What I want my clients to understand is this: tax planning is not about perfection. It is about awareness and action. You do not need to have everything figured out today. But you do need to be willing to engage with the process before it is too late to influence the outcome. Mid-year is that window. It is your opportunity to ask better questions, make more informed decisions, and approach the rest of the year with a strategy in place. Because when tax season arrives again, and it always does, the difference between stress and confidence is rarely luck. It is preparation.

What Happens If You Can’t Pay Your Taxes in Full?

2026-06-29T10:19:02Z

Filing your tax return is an important step toward staying compliant with the Internal Revenue Service (IRS). However, for many taxpayers, filing does not always mean paying the full balance due. If you find yourself unable to pay your taxes in full, you are not alone, and more importantly, you still have options. Understanding what happens next, and taking the right steps early, can make a significant difference in how your situation develops.

What Happens If You File But Don’t Pay?

When you file your tax return but do not pay the full amount owed, the IRS will begin assessing penalties and interest on the unpaid balance. The two most common consequences include:

Failure to pay penalty: Typically 0.5% of your unpaid taxes per month
Interest charges: Compounded daily based on federal rates

While filing your return on time helps you avoid the more severe failure, to, file penalty, your balance will still grow over time if left unresolved.

Will the IRS Take Immediate Action?

Not immediately, but they will begin a structured collection process. After processing your return, the IRS will typically send a series of notices outlining:

The amount you owe
Payment deadlines
Available resolution options

If these notices are ignored, the IRS may escalate collection efforts, which can include:

Filing a federal tax lien
Issuing a levy on wages or bank accounts
Seizing certain assets in more severe cases

The key takeaway is this: the earlier you respond, the more options you are likely to have available.

Your IRS Payment and Relief Options

If you cannot pay your taxes in full, the IRS offers several programs that may help you manage or resolve your debt. 1. Installment Agreements (Payment Plans) One of the most common solutions is setting up a monthly payment plan with the IRS. Depending on your financial situation, you may qualify for:

Short, term payment plans
Long, term installment agreements

This option allows you to pay your balance over time while remaining in good standing, though interest and some penalties may continue to accrue. 2. Offer in Compromise (OIC) An Offer in Compromise allows eligible taxpayers to settle their tax debt for less than the full amount owed. The IRS evaluates:

Your income
Living expenses
Asset equity
Future earning potential

Approval is not guaranteed, and the process requires detailed documentation. However, for qualifying taxpayers, it can provide meaningful relief. 3. Currently Not Collectible (CNC) Status If paying your tax debt would prevent you from covering essential living expenses, the IRS may classify your account as Currently Not Collectible. Under CNC status:

Collection efforts are temporarily paused
Penalties and interest may continue
Your financial situation may be reviewed periodically

This is not a permanent solution, but it can provide short, term breathing room. 4. Penalty Abatement In certain cases, taxpayers may request the removal or reduction of penalties. This may apply if you can demonstrate:

Reasonable cause (such as illness or unforeseen hardship)
A history of compliance

Penalty abatement can significantly reduce the overall amount owed.

Why Taking Action Early Matters

One of the most common mistakes taxpayers make is waiting too long to address their tax debt. Delaying action can:

Increase penalties and interest
Limit your eligibility for certain programs
Trigger more aggressive IRS enforcement

On the other hand, proactive taxpayers who respond early often have more flexibility in choosing the best resolution path.

The Importance of Strategy and Documentation

IRS resolution is not just about choosing an option, it is about presenting your case correctly. Every program requires:

Accurate financial disclosures
Supporting documentation
Strategic positioning of your situation

A poorly prepared submission can result in delays, denials, or less favorable terms.

Moving Forward with Confidence

If you cannot pay your taxes in full, it is important to remember that this situation is manageable, but only if addressed properly. The IRS provides structured pathways to resolution, and with the right approach, you can:

Reduce financial pressure
Protect your assets
Work toward long, term stability

The most important step is the first one: understanding your options and taking action before the situation escalates.

Haven’t Filed Taxes in Years? Here’s How to Catch Up Without Panic

2026-06-29T10:15:04Z

There is a specific type of psychological weight that sits on the shoulders of a "Ghost Taxpayer." This is an individual or business owner who, for one reason or another, missed a year of filing, then two, then five, and now feels trapped in a dark room with no visible exit. The fear of a knock on the door, a frozen bank account, or a certified letter from the IRS becomes a daily background noise that erodes your peace of mind and stalls your financial growth. As a tax attorney practicing in Maryland and a clinical instructor at the University of Maryland School of Law, I have spent decades navigating the complexities of the Internal Revenue Code. I have seen taxpayers from all walks of life, from high-net-worth professionals to small business owners, paralyzed by the thought of "coming clean." If you are living with the burden of unfiled returns, I want you to hear this clearly: The IRS actually wants you to come back into the system. As a "Legal Architect," I tell my clients that the tax code is not just a series of traps; it is a framework of "off-ramps" designed for those who have fallen out of compliance. There is a path home, but to avoid the most severe legal and financial pitfalls, you must walk it with a strategic, legal-first approach.

The Infinite Clock: Why "Waiting it Out" is a Legal Fallacy

The most dangerous piece of misinformation circulating among Maryland taxpayers is the idea that if you stay "hidden" long enough, the debt eventually expires. Many taxpayers cite the "10-year rule," believing that after a decade, they are in the clear. Under Internal Revenue Code § 6501, the reality is much harsher: The three-year statute of limitations for the IRS to assess tax, and the ten-year IRS collection statute (the Collection Statute Expiration Date, or CSED), does not start until a formal return is filed. If you haven't filed since 2010, the IRS technically has until the end of time to assess and collect that debt. Staying "under the radar" doesn't mean the debt is going away; it means you are granting the federal government an infinite window of opportunity to seize your assets, garnish your wages, and place liens on your property. Filing your back taxes is the only legal way to "start the clock" on your eventual freedom. By filing, we force the IRS to put a deadline on its own power.

The Danger of the SFR (Substitute for Return)

If you stay silent long enough, the IRS may eventually lose patience and file a return for you. This is known as a Substitute for Return (SFR). While this might sound like the government doing your paperwork for you, it is a financial disaster for the taxpayer. When the IRS creates an SFR, they do not grant you the deductions, business expenses, or credits you are legally entitled to. They assume a "Single" or "Married Filing Separately" status with the lowest possible standard deduction and zero exemptions. This results in the highest possible tax bill the government can justify. When my firm steps in, our first move is to "audit" these government-created returns. We pull your official IRS transcripts to see exactly what income has been reported under your Social Security number or EIN. We then replace those inflated SFRs with accurate, professionally prepared returns that reflect your true business expenses and life situation. This single step, moving from an SFR to an original return, often reduces a taxpayer's debt by 30% to 50% before we even begin negotiations.

Reconstructing the Past Without the Paperwork

The number one reason people stay delinquent is a perceived lack of records. I hear it every week: "Beverly, I’d file, but my records were lost in a move," or "My old bank closed my accounts and I can't get statements from five years ago." As a tax attorney, I have a direct line to the IRS’s internal databases. We can pull several types of transcripts to reconstruct your financial history accurately:

Wage and Income Transcripts: These show every 1099, W-2, and 1098 reported to the IRS by third parties.
Account Transcripts: These show the history of your tax account, including any SFRs, penalties assessed, or payments made.
Tax Return Transcripts: Crucial for seeing what was reported in the years you did file to ensure consistency in our new filings.

We don't need your shoebox of receipts to start your defense. We use the government’s own data to reconstruct your history. By using the IRS’s own information against them, we ensure that your returns are technically compliant and less likely to trigger an audit during the resolution process.

The Voluntary Disclosure Path: Control the Narrative

Coming forward voluntarily is almost always more advantageous than waiting for an IRS Revenue Officer to initiate contact. Through a formal IRS voluntary disclosure, we demonstrate to the government that you are making a good-faith effort to get right with the law. This is where "Reasonable Cause" comes into play. While you will still owe the underlying tax and interest, an attorney can litigate for Penalty Abatement. The unfiled tax returns penalty (Failure to File) can be as high as 25% of the total balance. If we can prove that your failure to file was due to circumstances beyond your control, such as a medical emergency, a death in the family, or natural disasters, we can often have those penalties removed. This turns an unmanageable debt into one that is actually solvable.

The "Six-Year" Rule: How Much Do You Really Need to File?

A common fear is that you have to file every single missing return dating back 20 years. However, IRS Policy Statement 5-133 (contained within the Internal Revenue Manual) generally provides that the IRS only requires the last six years of tax returns to be considered "compliant" for the purpose of entering into a settlement or payment plan. As your legal counsel, I help you determine exactly which years are necessary to file to satisfy the IRS's requirements while minimizing your financial exposure. This targeted approach saves you time, money, and unnecessary legal stress.

Finality: The Goal is a Fresh Start

You cannot settle a debt that hasn't been quantified. You cannot start an installment agreement for returns that don't exist. The first step to sleeping through the night again is achieving technical compliance. Once the returns are filed and the debt is "set," we move into the most critical phase: Negotiation. Whether it is an Offer in Compromise (settling for less than you owe), a Partial Payment Installment Agreement (a plan you can actually afford), or Currently Not Collectible status (stopping collections due to hardship), none of it is possible until the returns are filed.

Closing Thoughts

At the Law Office of Beverly Winstead, we don't judge the years you spent out of the system; we focus entirely on the years ahead of you. Whether you are a high-income professional who fell behind during a difficult season or a small business owner overwhelmed by life's transitions, the solution is the same: Get compliant, get protected, and get moving. Stop looking over your shoulder. The IRS has a playbcook, but when you hire a tax attorney, you bring your own. Let’s get you caught up, start your 10-year clock, and finally close the chapter on your back taxes.

Next Steps: Secure Your Strategy Session: If you have multiple years of unfiled taxes, don't wait for a levy notice or a knock on the door. Contact the Law Office of Beverly Winstead today for a confidential review of your transcripts and a plan for total resolution.