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Just incorporated, still many unanswered tax questions.

    • 3 posts
    October 2, 2008 7:13 PM EDT
    After running my business for almost 4 years, we`ve incorporated. I have numerous tax questions which no one has seemed to answer clearly. So hopefully I can get some advice on here. :)
    1. How do I handle a "split" year? 
    2. Is the sole proprietorship part of the business essentially ended once I incorporated? 
    3. Do I report that income still as sole proprietor or can it be considered income as the incorporation? 
    4. If split, how do I handle expenses?
    5. How do I handle local and state taxes for the corporation? It`s an S corporation, so I shouldn`t have much more than the Schedule-K, right? So what`s the 1120S for?
    6. So far, I`ve been able to avoid quarterly taxes, but business is doubling each year. Do corportations have to report taxes quarterly?
    7. I understand I should pay myself a "fair wage" in order not to look suspicious. What would be considered a fair wage? I`d like to keep it as small as possible, to minimize those extra taxes, while keeping as much money in the business as possible.
    8. There`s no way around paying taxes is there? :)
    9. Am I screwed if Obama gets elected and corporations get higher taxes?
    I also have another corporation, under the same roof, which hasn`t really gotten off the ground yet. No income or expenses at this point other than the costs of incorporation.
    1. How do I handle reporting taxes and other required reports for that business?
    2. How should I handle expenses and such once it gets going? I`d be using the same space and equipment for both companies.
    3. It is probably that one company will provide services to the other, and vice-versa. Is this frowned upon? The way I see it is that numbers are numbers, and they all have to add up somewhere, so I would think this would be alright.
    Questions about stock ownership
    1. I designated to own 1000 shares of stock at $0.01 each. Do I need to report this somewhere? 
    2. Anything else I need to be aware of in this regard?
    Questions about locale
    1. I run my business in Ohio, but opted for Nevada corporations. I understand I`m supposed to register to do business in Ohio, but haven`t yet for the inactive corporation, and just got my designation for the other business. I provide services only, and do so both nationally and internationally. I have a few local clients, too. Is registration in Ohio necessary? I never registered as a sole proprietor.

    Finally, is there anything else that new corporations commonly miss that I should be aware of?

    Cheers,
    Scott
    • 3 posts
    October 3, 2008 9:34 AM EDT
    I`ve consulted with a couple different CPAs and they just gave me the run-around. That`s why I`m hoping someone could be of more help online. My decision to incorporate was self researched, and had minimal or no outside influence. I incorporated through a popular online entity.
    • 3 posts
    October 3, 2008 9:32 PM EDT
    Interesting, I`ll look into it. Still, if anyone does happen to have ideas about any of my questions I`m open to discussing.

    Cheers,
    Scott
    • 72 posts
    October 9, 2008 11:05 AM EDT

    Ok, here goes.  I live and work in FL and have been preparing taxes for a very long time.  The EA is another good alternative for you but if you asked your questions like this to the CPAs that`s why you did not get good quality results.  My answers are in caps.  You will need to consult with your local tax professional, bite the bullet and PAY for your advice.  If you are successful, it is COST OF DOING BUSINESS and budget for it.  Expect to pay $1000-$1500 for good advice and bookeeping.  IF YOU CONSIDER THIS EXPENSIVE, WAIT TIL YOU HAVE TO PAY THE IRS.  If you bookeeping is minor, your costs can be controlled by taking it in house.  Take a course at your community college so you do it right.

    1. How do I handle a "split" year?  EXPLAIN WHAT YOU MEAN BY THIS.  PART OF THE YEAR AS A SOLE PROP AND PART AS AN S CORP?  THAT IS REPORTED ON THE 1120S AS A SHORT FIRST YEAR.
    2. Is the sole proprietorship part of the business essentially ended once I incorporated?  IF YOU DO THIS CORRECTLY, YES.  AS A PRACTICAL MATTER PEOPLE COULD STILL BE WRITING THE SOLE PROP CHECKS AND THAT GETS REPORTED ON THE SCHEDULE C.  EVERYTHING GOING THROUGH THE CORPORATION GOES ON THE 1120S. 
    3. Do I report that income still as sole proprietor or can it be considered income as the incorporation?  SEE ANSWER TO 3
    4. If split, how do I handle expenses? CLEANLY.  IF YOU INCORPORATED ON SEPT. 1 EVERYTHING AFTER SEPT 1 IS CORP.  DEPOSITS AND EXPENSES.  IF SOMEONE MAKES A CHECK PAYABLE TO YOU, SIGN IT OVER AND DEPOSIT TO THE CORPORATION.
    5. How do I handle local and state taxes for the corporation? It`s an S corporation, so I shouldn`t have much more than the Schedule-K, right? So what`s the 1120S for? THE 1120 S IS THE FORM FOR THE IRS.  IT IS WHERE YOU REPORT YOUR INCOME AND EXPENSES AND GET DOWN TO THE NUMBER THAT GOES ON THE K-1 THAT PASSES THROUGH TO YOU.  REPORT THE K-1 INCOME ON SCHEDULE E.
    6. So far, I`ve been able to avoid quarterly taxes, but business is doubling each year. Do corportations have to report taxes quarterly? I ASSUME YOU ARE TALKING ABOUT PAYROLL TAXES.  YOU HAVE TO REPORT AND PAY YOUR SALES TAXES IN WHATEVER MANNER YOUR STATE REQUIRES.  FAILURE TO DO THIS WILL END UP WITH YOU SHUT DOWN.  DO NOT DODGE YOUR REPSONSIBILITY HERE.  PAYROLL TAXES ARE DUE AT LEAST QUARTERLY AND MONTHLY IF YOUR PAYROLL IS OVER A CERTAIN AMOUNT.
    7. I understand I should pay myself a "fair wage" in order not to look suspicious. What would be considered a fair wage? I`d like to keep it as small as possible, to minimize those extra taxes, while keeping as much money in the business as possible.   YOU SHOULD BE AWARE THAT THE IRS HAS DETERMINED THAT A BUSINESS OWNER IS ALSO AN EMPLOYEE OF THE BUSINESS IF THEY PERFORM ANY MEANINGFUL WORK FOR THE COMPANY.  $10,000 IS A GOOD, SMALL BASE SALARY AND YOU CAN BONUS YOURSELF AT YEAR END IF YOU DO WELL, OR TAKE A SHAREHOLDER DISTRIBUTION.  APPLY TAXES TO YOUR BONUS AND YOUR SALARY.  THE SHAREHOLDER DISTRIBUTION FLOWS THROUGH THE K-1 TO YOUR PERSONAL TAXES BUT CONSULT A LOCAL TAX PROFESSIONAL.
    8. There`s no way around paying taxes is there? :) UH, NO.  AND YOU SHOULD BE HAPPY TO PAY THEM SINCE IT MEANS YOU ARE PROFITABLE.  HOWEVER THERE ARE MANY WAYS TO PAY THE LEAST AMOUNT YOU ARE REQUIRED AND THAT`S WHERE THE TAX PROFESSIONAL COMES IN.
    9. Am I screwed if Obama gets elected and corporations get higher taxes?  FACE IT, WE ARE ALL SCREWED EITHER WAY.  YOU DO NOT PAY TAXES AT THE CORPORATE LEVEL WITH AN S CORP IT FLOWS THROUGH TO YOUR PERSONAL TAX RETURN.
    I also have another corporation, under the same roof, which hasn`t really gotten off the ground yet. No income or expenses at this point other than the costs of incorporation.
    1. How do I handle reporting taxes and other required reports for that business? TREAT IT AS A SEPARATE SUBSIDIARY OF THE SAME CORPORATION.  WHY DID YOU GO TO THE EXPENSE OF TWO?  ARE THEY COMPLETELY SEPERATE BUSINESSES?
    2. How should I handle expenses and such once it gets going? I`d be using the same space and equipment for both companies.  SPLIT THE EXPENSES BETWEEN THE TWO.  WRITE CHECKS FROM BOTH COMPANIES FOR EACH`S PROPORTIONATE SHARE OF THE EXPENSES IS THE CLEANEST.  YOU CAN SET UP SEPARATE "DEPARTMENTS" IN QUICKBOOKS AND IT WILL ALLOCATE THE EXPENSES FROM THE SAME CHECK TO THE APPROPRIATE ENTITY.
    3. It is probably that one company will provide services to the other, and vice-versa. Is this frowned upon? The way I see it is that numbers are numbers, and they all have to add up somewhere, so I would think this would be alright.  HAVE ONE COMPANY BILL AND PAY THE OTHER SO YOUR BOOKS ARE CLEAN.
    NONE OF THIS ADVICE IS TO BE CONSTRUED AS SPECIFIC INVESTMENT AND OR TAX ADVICE IT IS FOR GENERAL KNOWLEDGE AND IS INTENDED AS SUCH.
    IRS Circular 230 Disclosure:
    Please be advised that any discussion of U.S. tax matters contained within this communication (including any attachments) is not intended or written to be used and cannot be used for the purpose of (i) avoiding U.S. tax related penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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    Dale
    www.ourbestidea.com
    www.maskerinsurance.com
    www.maskercreations.net

    • 434 posts
    October 3, 2008 12:35 PM EDT
    I`ve consulted with a couple different CPAs and they just gave me the run-around.


    Probably because they couldn`t smell money.  CPA`s tend to be expensive for a very small business, especially ones that plan to do most of the legwork themselves.

    Look for a tax preparer who is an Enrolled Agent.  This is a tax expert who is much better educated and more responsible for his/her advice than your grocery store tax prep person.  An EA has to take continuing education and pass a recertification test annually.  The EA that I use is in California, and is well worth the $400 or so that I pay him every year to take care of my personal and business taxes.  The amount I pay depends on the number of forms that he needs to research from my records and notes then prepare for e-filing. 

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    Steve Mann
    Internet Videographer
    MannMade Digital Video
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