Tax, explained clearly.

Most people meet the term Enrolled Agent for the first time when they need one. The credential dates to 1884, when Congress authorized agents to represent citizens with claims against the government, and it remains the only federally licensed credential focused specifically on taxation.

An EA is licensed by the Department of the Treasury through the IRS. To earn the credential, a candidate passes the three-part Special Enrollment Examination, covering individuals, businesses, and representation, or qualifies through relevant IRS experience, and passes a suitability check. To keep it, the EA completes 72 hours of continuing education every three years, including ethics, and follows the rules of practice in Treasury Circular 230.

What the credential authorizes is the important part. EAs have unlimited practice rights: they may represent any taxpayer, on any tax matter, before any office of the IRS. Practically, that means an EA can sign a Form 2848 power of attorney, speak with the IRS on your behalf, attend an examination in your place, and negotiate collection alternatives. Uncredentialed preparers cannot do that.

The other distinction is scope. CPAs and attorneys are licensed by states, and their licenses cover the broad fields of accounting or law. The EA credential is narrower and deeper: it is about tax, and it travels anywhere the IRS does.

The most common structuring question business owners ask is whether they should be an LLC or an S corporation. The question assumes a choice between two things of the same kind, and they are not.

A limited liability company is a legal entity created under state law. It provides a liability structure and an ownership framework. What it does not do is decide how the business is taxed. By default, the IRS taxes a single-member LLC like a sole proprietorship, on Schedule C, and a multi-member LLC like a partnership, on Form 1065.

An S corporation is not an entity at all. It is a tax status that an eligible corporation or LLC elects by filing Form 2553. Once elected, the business files Form 1120-S, income passes through to owners on Schedule K-1, and owners who work in the business are paid reasonable compensation through payroll before taking distributions.

So an LLC can be an S corporation for tax purposes, and many are. The real questions are whether the payroll cost and added compliance of S status are justified by your level of profit, what reasonable compensation looks like for your role, and whether you have plans, such as bringing in certain kinds of investors, that the S corporation eligibility rules would complicate.

The election also has a calendar. For an existing entity, Form 2553 is generally due within two months and fifteen days of the start of the tax year it should apply to. Missing that window is not always fatal, but it is far better to decide on time.

If you are an employee, tax is withheld from every paycheck and you rarely think about it. If you are self-employed, own a pass-through business, or have significant investment income, no one withholds for you. The IRS still expects to be paid during the year, in four installments due in April, June, September, and January.

Pay too little during the year and the IRS charges an underpayment penalty, which works like interest on the shortfall for each period it was outstanding. It applies even if you pay the full balance when you file.

The safe harbors are the way out. In general, you avoid the penalty if your payments during the year, withholding plus estimates, cover at least 90 percent of the current year's tax or 100 percent of the prior year's tax, whichever is smaller. For higher-income taxpayers, generally those with prior-year adjusted gross income above $150,000, the prior-year figure is 110 percent. There is also an exception when the total owed at filing is under $1,000.

The prior-year safe harbor is the planner's friend because it is knowable in advance. A year of rising income can be protected by paying 100 or 110 percent of last year's tax in equal installments and settling the rest at filing without penalty. That is a decision to make early in the year, not a discovery to make in April.

The CP2000 is one of the most common IRS notices and one of the most misunderstood. It arrives when income or payment information reported to the IRS by third parties, such as employers, brokerages, banks, or payment platforms, does not match what appears on your return. The IRS computes what it thinks the difference means and proposes additional tax, penalties, and interest.

The key word is proposes. A CP2000 is not a bill, and it is not the result of an audit. It is an automated matching notice, and it can be wrong in several ways: the income may already be reported on a different line, the cost basis of a stock sale may be missing so the entire proceeds look like gain, or a form may have been issued in error.

The notice includes a response date, usually 30 days from the notice date, and a response form on which you can agree, partially agree, or disagree. Disagreeing requires documentation, and a clear, organized response resolves most mismatches without further correspondence.

What not to do is pay it reflexively or ignore it. Paying accepts the proposed changes. Ignoring it leads to a Statutory Notice of Deficiency, after which your options narrow and deadlines tighten. If you receive one, gather the return and the documents behind the item in question, and get advice before you respond.

Year-end planning has a reputation as a December activity, but by December most of the year is already on the books. The better checkpoint is the third-quarter estimated payment in mid-September. Nine months of actual results are in hand, there is a full quarter left to act, and the fourth-quarter payment can be adjusted to reflect whatever is decided.

The September review answers a short list of questions. Where is income landing relative to last year? Is withholding or estimated tax on track for a safe harbor? Should planned equipment or other purchases happen before December 31 to take depreciation this year? Are retirement contributions maximized, and if a new plan is needed, does it have to be established before year-end? Is a business election, such as S corporation status, worth making for next year?

For business owners, September is also the moment to look at reasonable compensation and distributions, and to confirm that payroll for the year will land where it should. For individuals with investment income, it is when gains and losses can still be paired deliberately rather than in a rush during the last week of the year.

None of this requires drama. It requires a conversation with someone who has the return in front of them and a calendar in mind.

The appeal of an S corporation is that its income is not subject to self-employment tax the way a sole proprietor's is. Instead, the shareholder-employee pays employment taxes on wages, and the remaining profit passes through as a distribution that is not subject to those taxes.

The IRS's condition is that the wage must be reasonable compensation for the services the owner actually performs. Paying a nominal salary and taking everything else as distributions is the pattern the IRS looks for, and when it recharacterizes distributions as wages, the result is back employment taxes, penalties, and interest.

There is no fixed formula. Reasonable compensation depends on the work performed, the hours, the skill and training required, what comparable businesses pay for similar roles, and how the business's profit is generated. The defensible approach is to determine a figure using that kind of evidence, document how it was reached, and revisit it as the business changes.

Reasonable compensation is also where structuring and planning meet. The wage level affects payroll taxes, retirement plan contribution limits, and the qualified business income deduction. Setting it thoughtfully is part of the strategy, not an afterthought at year-end.