Change Company Name to Avoid Tax
In most cases, changing a company's name does not eliminate its liabilities, including any owed taxes.3 min read
Is it possible to change company name to avoid tax? In most cases, changing a company's name does not eliminate its liabilities, including any owed taxes.
How Companies Are Avoiding Paying Taxes
The United States has one of the highest corporate tax rates anywhere in the world. Yet, corporations often do not pay these expected rates. The Government Accountability Office estimates the U.S. tax burden to be at 25.2 percent with some of the largest corporations not paying any taxes at all.
The many loopholes of the law make it possible for large corporations to avoid their tax responsibilities. The Citizens for Tax Justice are working to push for stricter tax laws and to ensure that these corporations pay their fair share of taxes. These are a few of the most common tax loopholes:
- Deferral of overseas income: Companies that do business in more than one country do not have to pay U.S. taxes until the money is transferred back home. Some corporations avoid moving the money at all to avoid taxes.
- Deductions for shipping jobs overseas: Corporations can actually claim deductions for moving costs, even moving costs that are associated with moving to another country.
- The domestic production deduction: This proposal was meant to keep manufacturing companies in the U.S. allowing them to deduct profits from taxes owed. However, the law now includes all businesses and has a significant effect on the tax deficits.
- Last-in, first-out accounting: Corporations manager their accounts in a unique method, only paying taxes on the items with the highest purchase price, thus owing less in taxes.
- Punitive damages deduction: Punitive damages can be written off as an expense. The law allows corporations to deduct at a faster depreciation rate than normal. Corporations can also deduct the interest paid on new equipment.
- Corporate jet deduction: Corporations can claim deductions on the depreciation of private jets at a rate that is much faster than commercial airlines.
The entire United States tax code is 71,000 pages long, so it is no surprise that there are loopholes and exceptions to most of the existing tax laws.
How to Change Your Business Name As a Sole Proprietor or Partnership
It is a fairly simple process to change your business name if you have never established an official business structure with your operating state.
- Cancel the DBA name with the state: Fill out the necessary paperwork with the local government office.
- File for a new DBA with the state: You can file for a new DBA by filing the necessary paperwork yourself or by utilizing the services of an online legal service. Establishing a new DBA also requires the following steps:
- Convert your existing bank account or open a new one in the new DBA name.
- Check if you need to update existing licenses and permits.
- Determine if you need a new Employer Identification Number (EIN).
- Inform the IRS of the new DBA name.
How to Change Your Business Name As an LLC or Corporation
There are two options available for changing your business name as an LLC or corporation.
- File an amendment with the state: You can file an Articles of Amendment if you never intend on using your previous business name again.
- Keep your original name and file for a DBA: You can also keep your current name and file for a new DBA. This is a good option if you have existing trademarks or patents in your current business name.
Reasons to Change a Business Name
Tax preparers are trained to look out for certain red flags that could indicate that a business purposely changed their name numerous times to avoid paying taxes. Additionally, the government can identify when a similar business continues to change its name. There are acceptable reasons to change your business name, but avoiding taxes should never be one of them.
One of the most common reasons for changing a name is to re-brand a business. A business may choose to re-brand after adding new services, partners, or merging with another company. A business might also change their name after they have grown and a previous name no longer covers the current layout of the business.
If you need help with changing your business name, you can post your legal job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb