Terms and concepts
There are many advanced terms and concepts that most first-time founders, and even founders with prior experience, are unfamiliar with. We'll explain them in layman's terms.
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There are many advanced terms and concepts that most first-time founders, and even founders with prior experience, are unfamiliar with. We'll explain them in layman's terms.
Last updated
Starting a business can be a risky endeavor, and it’s important to protect your personal assets from any liabilities that may arise. One way to do this is by forming a limited liability company (LLC) or a C-corporation. Both of these entities offer personal liability protection, which means that the owners or shareholders are not personally responsible for the company's debts or legal obligations. Instead, the company itself is responsible for these liabilities.
C-corporations are taxed as separate entities from their shareholders. This means that the company pays taxes on its profits at the corporate level, and then the shareholders are taxed on any dividends they receive. This situation is what we refer to as "double taxation".
On the other hand, LLCs are flexible in terms of taxation. It can be taxed as a partnership or a corporation. If it is taxed as a partnership, the company's profits and losses are passed through to the members, who report them on their personal tax returns. As a result, owners would AVOID double taxation.
One of the key benefits of an LLC is that it allows the owners, who are called members, to choose how they want to manage the company. They can choose to manage the company themselves or hire a professional manager to run it. Additionally, an LLC can have one or more members, and there are no restrictions on who can be a member. Members can be individuals, other companies, or even foreign entities. This means that an LLC can be owned by a single person, multiple people, or even other businesses.
Shares and stocks are essentially ownership units in a corporation. When you own shares of a corporation, you own a percentage of that company. This is true for both private and public corporations. However, in the case of a private C-corporation, the shares are not publicly traded on a stock exchange.
When a private C-corporation is looking to raise capital, it can issue stocks to investors. These stocks represent ownership in the company, and investors can buy and sell these stocks to other parties. This allows the corporation to raise capital quickly and easily, as it can sell shares to a large number of investors.
LLCs do not have shares or stocks, so they cannot issue them to investors. Instead, LLCs must raise capital through other means, such as loans or investments from its members (in LLCs, owners are referred to as members).
Investors may be more willing to invest in a C-corporation than an LLC because of the potential for higher returns. If the C-corporation is successful, the value of its stocks may increase, allowing investors to sell their shares at a profit. This potential for high returns can be attractive to investors, making it easier for the corporation to raise capital.
Outstanding shares refer to the total number of shares of a corporation's stock that are currently owned by all its shareholders. This includes shares held by institutional investors and restricted shares owned by the company’s insiders and officers. The concept of outstanding shares is crucial in understanding a company's financial health, valuation, and the distribution of voting power.
These shares represent the "slice of the pie" each shareholder has in the company. The number of outstanding shares is important as it is used to calculate key financial metrics like earnings per share (EPS), cash flow per share, and the company's market capitalization. In terms of governance, each share generally corresponds to one vote at shareholder meetings, meaning that the distribution of outstanding shares directly impacts the company's control. As a business owner, knowing the number of your company's outstanding shares helps you to make informed decisions and strategies.
A C-corporation is a type of business entity that is taxed as a separate entity from its owners or shareholders. This means that the corporation itself is responsible for paying taxes on its profits, and the shareholders are only taxed on the income they receive from the corporation, such as dividends or salary.
One of the main tax benefits of a C-corporation is that it can deduct certain expenses from its income, such as salaries and benefits for employees, before calculating its taxable income. This can significantly reduce the amount of income that the corporation is taxed on, resulting in lower taxes for the corporation. Another tax benefit of a C-corporation is that it has a lower tax rate than individuals. C-corporations are taxed at a flat rate, which as of 2021 is set at 21%. In contrast, individuals are taxed at a progressive rate, which means that their tax rate increases as their income increases.
In addition, C-corporations have more flexibility in terms of when they pay taxes. For example, they can choose to retain profits in the corporation rather than distribute them as dividends, which can defer taxes to a later date. C-corporations also have the ability to carry forward losses from previous years to offset future profits. This means that if the corporation experiences a loss in one year, it can carry that loss forward to offset its profits in future years, reducing its tax liability.
An equity plan is a type of compensation plan that allows employees, executives, and sometimes even contractors or consultants, to acquire a form of ownership in the company. This ownership usually comes in the form of stock options, restricted stock, or other equity instruments.
The purpose of an equity plan is to align the interests of the employees with those of the company and its shareholders. It incentivizes employees to contribute to the company's success because they stand to gain from the company's growth and profitability. Equity plans also serve as a tool to attract, motivate, and retain top talent, particularly in competitive markets.
By granting employees a stake in the future success of the company, an equity plan can create a powerful incentive for employees to perform at their best and contribute to the company's long-term success.
Stock options allow employees to purchase shares of their company's stock at a discounted price, giving them the potential to profit if the stock's value increases. Here's how employee stock options work: an employer grants an employee the option to purchase a certain number of shares of company stock at a set price, which is usually lower than the current market value of the stock. The employee can then exercise the option to purchase the shares at the set price and hold onto them or sell them at a later time. If the value of the stock increases, the employee can sell the shares at a profit.
Employee stock options can be a valuable benefit for employees because they give them the potential to earn additional income based on the performance of their company's stock. It also provides an incentive for employees to work hard and help the company succeed, which benefits both the employees and the company.
Employee stock options are only available to corporations because only corporations can issue stocks. This means that only corporations can grant their employees the option to purchase company stock at a discounted price.
In employee stock options, a cliff is a period of time that must pass before an employee is eligible to exercise their options. During the cliff period, the employee cannot exercise their stock options and has no ownership in the company. For example, let's say an employee is granted stock options with a one-year cliff. This means that the employee cannot exercise their stock options until one year after the grant date. If the employee leaves the company before the cliff period is over, they forfeit their stock options and have no ownership in the company.
The purpose of a cliff in employee stock options is to incentivize employees to stay with the company for a certain period of time. It also protects the company from giving stock options to employees who may leave shortly after receiving them, which could be costly for the company.
A vesting period is the length of time an employee must work for a company before they are fully entitled to the stock options that have been granted to them. During the vesting period, the employee gradually earns ownership of their stock options over time, until they are fully vested and can exercise their options.
For example, let's say an employee is granted stock options with a four-year vesting period and a one-year cliff. This means that the employee cannot exercise any of their options for the first year, and then they will begin to vest over the remaining three years. At the end of the four-year period, the employee will be fully vested and can exercise all of their options.
The purpose of a vesting period is to incentivize employees to stay with the company for a certain period of time, and to reward employees for their loyalty and contributions to the company's success. It also helps the company retain valuable employees, as they will lose their stock options if they leave the company before they are fully vested.
A board-certified professional entity is a type of corporation formed by licensed professionals in regulated industries, such as law, medicine, accounting, and architecture. This entity is governed by a regulatory board or professional association that ensures professionals adhere to certain ethical standards and best practices. By forming a board-certified professional entity, professionals can benefit from legal protections, maintain professional standards and ethics, and even enjoy tax advantages.
Authorized shares refer to the maximum number of shares of stock that a corporation is legally allowed to issue to its shareholders. This number is typically specified in the corporation's Articles of Incorporation, which is a legal document filed with the state when the corporation is formed.
Think of authorized shares like a limit on the number of tickets that a concert venue can sell for a particular show. Just like a concert venue can't sell more tickets than its capacity allows, a corporation can't issue more shares than its authorized share limit allows.
Authorized shares don't necessarily represent the actual number of shares that a corporation has issued or plans to issue. Rather, it's a limit on the total number of shares that can be issued. The actual number of shares issued may be lower than the authorized share limit, depending on the needs of the corporation and the decisions of its board of directors.
Shares of stock in a corporation are units of ownership in the company. When you buy a share of stock in a corporation, you become a part-owner of the company and have certain rights, such as the right to vote on certain matters related to the company and the right to receive a portion of the company's profits in the form of dividends. Your rights can depend on the type of stock (e.g. preferred or common stock).
The value of your share of stock can go up or down depending on how well the company is doing. If the company is doing well and making a profit, the value of your share of stock may go up, and you may be able to sell it for more than you paid for it. However, if the company is not doing well, the value of your share of stock may go down, and you may not be able to sell it for as much as you paid for it.
Share classes represent different types of stock that a company issues to shareholders. While all share classes represent ownership in the company, they can come with different rights and privileges, such as voting rights, dividend rights, and rights to the company's assets in the event of a liquidation.
The purpose of having different share classes is to distribute the rights and control of the company in a way that suits the company's needs. For instance, a company might want to raise capital without diluting control, so it issues non-voting preferred shares. Understanding the different share classes is crucial for investors and shareholders as it affects their rights, benefits, and overall stake in the company.
The main difference between preferred stock and common stock is the type of rights and privileges that each type of stock offers to its shareholders.
Preferred stock is a type of stock that typically offers a fixed dividend payment to shareholders. This means that shareholders who own preferred stock are entitled to receive a dividend payment before common shareholders, and the dividend payment is usually a fixed amount that is specified at the time the stock is issued. In addition, preferred stockholders may have priority over common stockholders in the event that the company goes bankrupt and its assets are liquidated.
Common stock, on the other hand, represents ownership in the company and usually carries voting rights that allow shareholders to have a say in the company's decision-making processes. Common stockholders may receive dividend payments, but these payments are usually not fixed and may vary depending on the company's performance. Common stockholders may also receive a portion of the company's profits through share price appreciation if the company performs well.
In summary, preferred stockholders typically receive a fixed dividend payment and may have priority in the event of bankruptcy, while common stockholders have voting rights and may receive dividend payments and share in the company's profits through share price appreciation.
In a corporation, "seniority level" refers to the hierarchy or priority among different classes of shares or securities in terms of claims on the company's assets, earnings, and dividends. When a company has multiple classes of shares, some may have preferential treatment over others, which can be crucial in situations like bankruptcy, liquidation, or distribution of dividends.
Seniority level is important when determining the order in which shareholders or bondholders will be paid in case the company faces financial difficulties or goes through a liquidation process. The shares or securities with higher seniority levels have a higher claim on the company's assets and earnings, while those with lower seniority levels may receive less or even nothing if the company's assets are insufficient to cover all outstanding claims.
For example, a company might issue different classes of shares, such as Class A and Class B, where Class A shares have a higher seniority level than Class B shares. In this case, Class A shareholders would have priority over Class B shareholders when it comes to dividend payments or distribution of assets in case of liquidation. Similarly, in the case of bonds, senior bonds have priority over subordinated bonds in terms of interest payments and repayment of principal.
It is important for investors to understand the seniority level of the shares or securities they own or plan to invest in, as it directly affects their potential returns and the level of risk involved in their investment.
In the context of common stock being converted to preferred stock, the conversion ratio represents the number of preferred shares an investor would receive for each common share they convert. This predetermined ratio is outlined in the company's stock agreement or the terms of the preferred stock issuance, allowing investors to know how many preferred shares they will receive in exchange for their common shares. It's important to note that converting from common to preferred stock is less common than converting from preferred to common stock or from convertible bonds to common stock.
Pro-rata rights, also known as pre-emptive rights, are a contractual term that allows current shareholders in a company to purchase additional shares in future fundraising rounds to maintain their ownership percentage.
These rights are particularly significant during a company's fundraising efforts. When a company issues new shares to raise additional capital, it can dilute the ownership stake of existing shareholders. Pro-rata rights give existing shareholders the opportunity to avoid or minimize this dilution by purchasing a proportional amount of the new shares being issued.
Pro-rata rights can be especially important for early-stage investors who want to maintain their ownership percentage as the company grows and takes on additional funding. It ensures they do not lose influence or potential financial benefits due to dilution from future investment rounds.
A Most Favored Nation (MFN) clause is a provision often included in business and investment contracts. It ensures that if a party to the agreement grants better terms to another party in a future agreement, those same terms must be offered to the party that holds the MFN status.
For example, if an investor has an MFN clause in their contract and the company later provides more favorable terms (such as a lower price or better rights) to a new investor, the company is obligated to offer the same terms to the investor with the MFN clause.
In essence, the MFN clause ensures fairness and prevents a company from providing more favorable terms to future investors without extending those same terms to existing investors. It is commonly used in venture capital financing to protect early-stage investors, making sure they benefit from any improved terms offered to later investors.
Liquidation preference is a provision in a company's investment agreement that gives certain shareholders, usually preferred stockholders, the right to be paid before other shareholders in case the company is liquidated, sold, or experiences another exit event. This ensures that these investors recover their investment and, in some cases, a predetermined return before any remaining proceeds are distributed to other shareholders, such as common stockholders.
Liquidation preference multiple, often referred to as a multiple or a preference multiple, is a term used in venture capital and private equity investment agreements that specifies how much preferred shareholders will receive relative to their initial investment in the event of a liquidation, exit, or sale of the company.
The liquidation preference multiple is typically expressed as a multiple of the original investment amount. For example, a 1x liquidation preference multiple means that preferred shareholders are entitled to receive an amount equal to their initial investment before any proceeds are distributed to common shareholders. A 2x liquidation preference multiple would entitle preferred shareholders to receive twice their initial investment before the distribution of any remaining proceeds.
The liquidation preference multiple is a mechanism to protect investors, ensuring they recover at least their initial investment (or more, depending on the multiple) in the event of a company's liquidation or exit. This can impact the distribution of proceeds between preferred and common shareholders, and the specific multiple is typically negotiated during the investment rounds based on factors such as the perceived risk of the investment and the company's financial position.
Liquidation preference participation types refer to the different ways preferred shareholders can receive proceeds in the event of a company's liquidation or exit, such as a merger, acquisition, or initial public offering (IPO). There are two main types of liquidation preference participation:
Non-participating liquidation preference: In a non-participating liquidation preference arrangement, preferred shareholders receive their initial investment back, plus any agreed-upon multiple (e.g., 1x, 2x) before common shareholders receive anything. Once the preferred shareholders' liquidation preference is satisfied, the remaining proceeds are distributed among common shareholders. In this scenario, preferred shareholders do not participate in the distribution of the remaining proceeds along with the common shareholders.
Participating liquidation preference: With participating liquidation preference, preferred shareholders receive their initial investment back and any agreed-upon multiple first, similar to non-participating liquidation preference. However, after this payout, preferred shareholders also participate in the distribution of the remaining proceeds along with common shareholders, based on their ownership percentage. This arrangement is more advantageous for preferred shareholders, as they receive a larger portion of the proceeds, but can result in a smaller payout for common shareholders.
The choice between non-participating and participating liquidation preference is typically a point of negotiation during investment rounds. Investors might prefer participating liquidation preference for added protection and potential upside, while company founders and common shareholders generally prefer non-participating liquidation preference to minimize dilution of their share of proceeds in exit events.
A liquidation preference participation cap is a provision in an investment agreement that limits the total amount participating preferred shareholders can receive in a liquidation or exit event, such as a merger, acquisition, or initial public offering (IPO). The cap is typically expressed as a multiple of the initial investment and ensures that participating preferred shareholders do not receive an excessively large portion of the proceeds at the expense of common shareholders.
When the cap is reached, the participating preferred shareholders convert their shares into common shares and share the remaining proceeds pro-rata with the other common shareholders. This provision strikes a balance between providing some level of protection and potential upside for preferred shareholders while still allowing common shareholders to benefit from the company's success.
In summary, a liquidation preference participation cap sets a limit on the total payout for participating preferred shareholders in a liquidation event, helping to protect the interests of common shareholders.
Share par value is a legal requirement in some states that sets a minimum value for each share of stock issued by a corporation. The par value is typically a very small amount, such as $0.01 or $0.001 per share, and has little to no relation to the actual market value of the shares.
The purpose of share par value is to ensure that a corporation has a minimum amount of capital when it issues its shares, as some states require corporations to have a certain amount of authorized capital in order to incorporate. The par value also sets a minimum price that a company can receive for its shares, which can be useful in situations where the company needs to issue additional shares in order to raise capital.
However, in practice, the par value of shares is largely symbolic and has little impact on the actual value of the shares or the price that investors are willing to pay for them. Most modern corporations issue shares with very low or no par value, and instead focus on the market value of the shares, which is determined by factors such as the company's financial performance, industry trends, and investor sentiment.
When forming a business, the ownership of a highway motor vehicle with a taxable gross weight of 55,000 pounds or more can have tax implications for the company.
Under the federal tax code, there is a tax known as the Federal Heavy Vehicle Use Tax (HVUT), which is imposed on the use of certain heavy vehicles on public highways. The tax is based on the taxable gross weight of the vehicle and is paid annually to the Internal Revenue Service (IRS).
If a company owns a highway motor vehicle with a taxable gross weight of 55,000 pounds or more, it will be subject to this tax. The amount of tax owed is determined by the weight of the vehicle and can range from several hundred to several thousand dollars.
Therefore, when forming a company, it is important to consider the potential tax implications of owning a highway motor vehicle with a taxable gross weight of 55,000 pounds or more and to factor this into the corporation's financial planning.
the Federal Heavy Vehicle Use Tax (HVUT) also applies to Limited Liability Companies (LLCs) if they own highway motor vehicles with a taxable gross weight of 55,000 pounds or more that are used on public highways.
LLCs are considered pass-through entities for tax purposes, which means that the tax liability for the HVUT is passed through to the LLC's members, who report the tax on their individual tax returns.
The HVUT is reported on Form 2290, which is filed annually with the Internal Revenue Service (IRS). If the LLC is the owner of the vehicle, the LLC is responsible for filing the Form 2290 and paying the tax. If the vehicle is owned by an individual member of the LLC, the member is responsible for filing the Form 2290 and paying the tax.
the Federal Heavy Vehicle Use Tax (HVUT) applies to C-corporations if they own highway motor vehicles with a taxable gross weight of 55,000 pounds or more that are used on public highways.
When a C-corporation owns a highway motor vehicle that meets the weight threshold, the corporation must file Form 2290 with the Internal Revenue Service (IRS) and pay the HVUT annually. The amount of the tax owed is determined by the weight of the vehicle and can range from several hundred to several thousand dollars.
It is important for C-corporations that own highway motor vehicles with a taxable gross weight of 55,000 pounds or more to comply with the HVUT requirements and file Form 2290 by the annual deadline to avoid penalties and interest. Additionally, it's important to note that the HVUT is not a deductible expense for tax purposes, so it can increase the corporation's taxable income and result in a higher tax liability.
Form 720 is a quarterly federal excise tax return that reports certain types of taxes imposed by the federal government. These taxes are generally levied on specific goods, services, and activities, such as environmental taxes, communications taxes, and taxes on indoor tanning services.
For a new company, it is important to determine if it is subject to any of the excise taxes reported on Form 720. If the company engages in any of the taxable activities, such as selling certain goods or services, it may be required to file Form 720 and pay the related taxes. Failing to file the return or pay the tax on time can result in penalties, interest, and other consequences that can affect the company's financial standing and compliance with the Internal Revenue Service (IRS).
Therefore, it is recommended that new companies consult with a tax professional to determine if they are subject to any excise taxes and to ensure that they file Form 720 accurately and on time to avoid any penalties or interest.
There are several goods and services that are subject to excise tax and must be reported on Form 720. Some examples include:
Environmental taxes, which are imposed on petroleum and certain chemicals that can harm the environment.
Communications taxes, which are imposed on the transmission of voice and data services.
Transportation taxes, which are imposed on the use of commercial vehicles on public highways.
Fuel taxes, which are imposed on the sale or use of certain fuels, such as gasoline and diesel.
Tobacco and alcohol taxes, which are imposed on the sale or import of these products.
Indoor tanning services, which are subject to a 10% excise tax.
PCORI fees, which are imposed on certain health insurance policies to fund medical research.
It's important to note that not all companies are subject to excise taxes, and the specific goods and services subject to these taxes can vary depending on the nature of the business. Therefore, it's recommended to consult with a tax professional to determine if any excise taxes apply to the company and to ensure accurate reporting on Form 720.
A stock certificate is a physical or electronic document that signifies ownership in a company. It includes important details such as the number of shares owned, the date, an identification number, a corporate seal, and signatures. Stock certificates serve as a legal proof of ownership and were traditionally used to represent share ownership before the advent of electronic registration systems.
While many companies now use electronic records, stock certificates can still play a role, particularly in smaller or closely-held corporations. They can serve as a tangible symbol of ownership, and some investors and business owners appreciate the traditional aspect of holding physical proof of their investment. Whether physical or digital, understanding the role and significance of stock certificates is crucial for any corporation's shareholders.
A stock ledger is a record that keeps track of all the shares a corporation issues. It provides crucial details such as the names of all shareholders, the number of shares each shareholder owns, the certificate numbers if applicable, and any transfers of ownership that occur over time.
The ledger plays a crucial role in maintaining accurate corporate records and ensuring lawful governance and operation. It helps the corporation manage its equity, ascertain ownership for voting purposes, and verify information during audits or due diligence processes. An up-to-date and accurate stock ledger is an essential part of a corporation's record-keeping responsibilities.
Convertible securities are financial instruments, typically bonds or preferred shares, that can be converted into a different form of security - usually common stock of the issuing company. These securities provide investors the opportunity for the potential upside of converting to equity while providing downside protection if the company's equity value decreases.
SAFE (Simple Agreement for Future Equity) notes are a type of convertible security that was designed to simplify seed-stage investment. It's a contract that gives the investor the right to receive equity at a later date in exchange for providing capital today. SAFE notes are not debt and do not accrue interest, which makes them simpler and potentially more founder-friendly than convertible notes.
Convertible notes, on the other hand, are a type of short-term debt that converts into equity in the future. This usually happens in the event of a subsequent financing round. Unlike SAFE notes, convertible notes do accrue interest. They offer more protection for investors as they have the option to get repaid their investment with interest if the company fails to raise future financing.
A registered agent is a designated person or business entity that officially receives and sends legal documents on behalf of your business. These documents may include important state, tax, and legal documents, such as notice of lawsuits (service of process), franchise tax forms, and annual report forms.
Every business entity formed or registered to do business in a U.S. state is required by law to designate a registered agent. The registered agent must have a physical address (not a P.O. Box) within that state and must be available during normal business hours to receive important documents.
The role of the registered agent is crucial as they ensure your business maintains compliance and stays in good standing by receiving and processing vital state notifications promptly. They protect your privacy, streamline your paperwork, and safeguard your business by ensuring you don't miss any important notices or deadlines.
Some of Dappr's plans include a Registered Agent, but if you choose a plan that does not include this service, you can always add it as an add-on before or during checkout.
When starting a business that will have employees, one of the critical steps is to register for an Employer Identification Number (EIN) using IRS Form SS-4. A less-discussed but crucial decision on this form is choosing between filing your employment taxes annually using Form 944 or quarterly using Form 941. This choice can simplify your tax responsibilities significantly if you expect to have a small payroll. Here's a breakdown to help you understand what each form is for, and how to decide which one to file.
The IRS requires all employers to withhold federal income tax, Social Security tax, and Medicare tax from their employees' wages. Depending on the size of your payroll, these taxes must be reported and paid at different intervals:
Form 941, Employer's Quarterly Federal Tax Return: This is the standard form used by most businesses. It must be filed four times a year, detailing the wages paid, tips your employees reported, as well as the taxes withheld during each quarter.
Form 944, Employer’s Annual Federal Tax Return: Designed for smaller employers, this form simplifies reporting by allowing eligible businesses to report and pay withheld federal taxes once a year instead of quarterly.
To file Form 944, your total annual liability for Social Security, Medicare, and withheld federal income taxes is expected to be $1,000 or less, which means you expect to pay $4,000 or less in total wages. If this describes your business, you can check the appropriate box on Form SS-4 to express your interest in filing Form 944.
The IRS will review your eligibility and send you a written notice confirming whether you can file Form 944. If you are not approved to file Form 944, you must file Form 941 quarterly.
Filing annually with Form 944 can be particularly beneficial for very small businesses because:
Simplified paperwork: Managing payroll taxes only once a year simplifies your administrative duties.
Reduced accounting costs: Less frequent filing can lead to lower costs if you use a professional accountant.
Easier cash flow management: Knowing your tax obligations on an annual basis can make it easier to manage your business’s cash flow.
Estimate your annual payroll expenses: If you expect to pay less than $4,000 in wages for the year, you might qualify to file Form 944.
Consider your administrative capacity: If you prefer less frequent tax filing, Form 944 could be beneficial. However, remember that you need to keep accurate and ongoing records of payroll throughout the year.
Check for IRS approval: Even if you opt-in for Form 944 on Form SS-4, remember that it's up to the IRS to approve your request based on their assessment of your estimated payroll taxes.
If you start filing Form 944 but your business grows and your employment tax liability exceeds $1,000 in a year, you must switch to filing Form 941 quarterly. Notify the IRS as soon as you realize that your payroll will exceed the threshold so that you can adjust your filings accordingly.
Choosing the right form for your employment taxes can save you time and help you manage your tax obligations more effectively. While Form 944 offers a simplified method for very small businesses, it's important to assess carefully whether you meet the criteria and to monitor your eligibility as your business grows. Always stay informed about your tax obligations and consult with a tax professional if you are unsure about the best approach for your situation.