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2 Home Office/Small Busines Category 7, Topic 19 Message 1 Fri Mar 23, 1990 J.ATTARD [Janet(sysop)] at 21:54 EST Larry or Phil: I had a question in email from a user who I believe runs a one- person business and wanted information on the tax benefits of incorporating. When you get a chance, could you leave some thoughts on when -- from a tax standpoint--it's beneficial to incorporate-- both for one-person businesses and businesses that have employees? Are there any general tax rules of thumb to follow? What about drawbacks for one person corps? --Janet ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 2 Sun Apr 01, 1990 L.BENTON at 21:54 EDT If a "one person" business carries with it ANY business liability I would suggest to a client that the business be incorporated. First, corporations offer the limited liability feature. Secondly, having the corporation elect the S corporation will allow them to avoid the double taxation of regular (C) Corporations. By the way, that election should be from day ONE of activity (to avoid certain tax problems. Next, the profits of a S Corporation are passed thru to the stockholder and are NOT subject to Self-employment (FICA) tax. At least in NY, if there is only a stockholder doing work in the corporation, workmen's compensation and disability insurance can be waived. The only drawbacks, again in NY, is the NYS Franchise filing fee of $325 and of course the cost of legal fees for incorporating. I hope that this has been helpful and please feel free to send me any questions you may have. Larry ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 3 Mon Apr 02, 1990 SEITZINGER [Kent] at 00:56 EDT You might want to check out the legal category here on HOSB (cat 8). In most cas4s, limiting liability is NOT a good reason to incorporate a "one person" business. The reason: even a corporate veil will not protect you from your own negligence or breach of contract. =Kent= ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 4 Mon Apr 02, 1990 PHOTOBASE2 [John Crane] at 21:06 EDT Kent, what you say about incorporation not protecting a self-employed person from liability corresponds with what I've been advised here in Florida. - John ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 5 Tue Apr 10, 1990 TAXES at 01:35 EDT I am also from the school of thought that ncorporation is not of benefit to the small business. The main reason given for incorporating is to protect assets if one is sued. Both a corporation and an individual can purchase insurance to deal with the possiblity of suits. Keep in mind that sales taxes and payroll taxes are considered "trust funds" (the government is trusting you to turn over "their" money and as such "trust funds" are the personal liability of more than 5% shareholders and or/ responsible corporate officers who may be liable at the federal level for a 300% penalty if the taxes aren't paid. In most states, a corporate officer may not exclude him/herself from unemployment coverage but try firing yourself and then try to collect while still a stockholder/officer in the corporation. ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 6 Sun Apr 15, 1990 R.GREENBERG5 [ROY] at 11:42 EDT TAXES, as long as we're touching on shareholder liability, be aware that at least in New York, the ten largest shareholders are liable for the wages of unpaid employees. I haven't looked at that particular section of the law in some time, but it struck me as so strange, that I never forgot it. With respect to collecting unemployment when you're a shareholder of the same corporation, forget it. ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 7 Tue Apr 17, 1990 J.ATTARD [Janet(sysop)] at 23:59 EDT Hmmmm, Roy, does wages also apply to fees of independent contractors... and how does one find out who the shareholders are if the amount involved doesn't really warrant hiring an attorney to pursue (small claims court type amounts.) --Janet ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 10 Fri Dec 28, 1990 D.T.HILL at 00:59 EST I have a question maybe someone can help with... In Aug my partner and I decided to form a S corp for the asset protection it offers. We filed the paperwork with the state and IRS. The IRS denied our S corp status for this year, which I can understand. But since we have filed the paperwork for incorporation we can not file as a partnership for the entire year, can we? I am afraid we will have to file half a year as a partnership and the other half as a corporation. Any ideas? S ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 12 Sun Dec 30, 1990 J.SLICKJR [Jack-CPA] at 21:54 EST D. T. Hill, If you incorporated and operated the business as a corporation then you can't file a partnership return, you will have to file a regular corporation return. While S-corps and partnerships are very similar in operation the legal status of a corporation takes precedent. So if you don't have a valid and approved S-election you cannot file as a S-corp. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 13 Tue Jan 01, 1991 TAXES at 22:07 EST THE REASON YOU BUY INSURANCE IS TO PROTECT YOU IN CASE OF SUIT. BEING AA CORPORATION DOES NOT NECESSARILY PROVIDE YOU THE PROTECTION YOU DESIRE; I.E. PAYROLL TAX LIABILITY IS A PASS THROUGH TO THE SHAREHOLDERS IF NOT PAID. YOU ARE A CORPORATION AND MUST FILE A RETURN; HOWEVER, YOU CAN CONDUCT ALL ACTIVITIES THROUGH THE PARTNERSHIP AND BE AN INACTIVE CORPORATION WHICH WOULD REQUIRE MINIMUM PAYMENT ONLY TO THE STATE OF INCORPORATION. ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 14 Wed Jan 02, 1991 B.LERER [Bruno Lerer] at 22:41 EST The IRS should have approved your application for S status if it was filed within 75 days of incorporation and allow your corporation to be qualifed as an S corp. for its first short year (August- December). You would then file a partnership return for the period January-July and and S return for the rest of the year. If you were too late in filing (but the corporation otherwise qualifies as an S), its application should be approved for the 1991 year. You would then file a C corporation return for the rest of 1990 and an S return for 1991 and later. Hope this helps. Bruno ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 15 Sat Jan 12, 1991 A.THORPE [Al] at 15:15 EST I'm new to GEnie. Brad Solomon invited me here. I just wanted to mention that some creative accounting could be used for the short period from when the corporation had stockholders or was in business to the end of the year at which point a S election on Form 2553 could be filed. The mission is to exactly break it even, if C Corp status is unacceptable (as it would be, perhaps with a professional service corp- oration). If it had a loss, it would be unavailble to the S Corp period. If it had a profit, the small amount of income would get taxed at 34%. I saw a memo from our local IRS complaining about professional C Corps which ignore this point, and it appears that they (the IRS) are going to start examining Forms 1120 which look like professional service corps and which are making use of the 15 and 25% rates. [C[C[C[C[C[C[C[C[C[C[C[C[C[C[C[C[C[C[C[C[C[C[C[C[C[C [C[C[C[C[C[CAl Thorpe ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 17 Tue Sep 17, 1991 C.BROWN at 22:09 EDT As a New Non-profit corporation, what tax forms are we supposed to file also I your year ending is something else than Dec. 31 do you still use it as your tax year. Help needed? /s{ ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 18 Tue Sep 17, 1991 JSLICK [JACK] at 23:52 EDT C. Brown, The proper form to be filed is determined by what type of non- profit you are. There are about 3 or 4 different types and each one has a different filing requirement. As far as year end goes a non- profit can select any year end they wish. Select something other than December 31, and you will really make your accountant happy! If you let me know wich type of non-profit you are, I'll try to steer you to the proper forms. Generally they are forms 990, but there are different suffixes that designate the different types of non-profits. Most common are generic 990's and 990PF's there is also a 990T and there may be another that I'm not thinking of, let me know in what manner you filed for exemption with the IRS, and I'll try to steer you to the proper form. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 19 Wed Sep 18, 1991 BRAD [Brad Solomon] at 00:34 EDT C.BROWN, The federal reporting form for most non-profit corporations is the 990. I say most, because there are many types of non-profit corps - my condo association is one, and it uses 1120, 1120-A or 1120-H, private foundations use a 990PF, etc. State and local filing requirements vary. Yes, you can file on a fiscal year basis. Brad ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 21 Sat Sep 21, 1991 C.BROWN at 16:54 EDT Jack Our non-profit corp filed as a 501 (c)(3) Child Care Organization. We star started our business year October 1, 1990. We aThanks for your help. When do we file our tax return. C.Brown ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 22 Sat Sep 21, 1991 JSLICK [JACK] at 23:47 EDT C. Brown, OK, you will need to file form 990, you'll also need to file the schedule A that goes with it. As to year-end anything that makes sense. If you do nothing, your year-end would be September 30. My suggestion would be that your slowest time would be when the school year ends, which would make it easier to close the books and get the year-end done. So a June 30 year-end would make sense. All you need to do is file your first return with a June 30 year-end, which means that the return needs to be filed by November 15th. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 23 Sun Sep 22, 1991 BRAD [Brad Solomon] at 01:34 EDT C.Brown, A 501 (c) (3) organization like you describe would file a 990, unless your annual gross receipts are normally $25,000 or less. If your gross receipts are less than $100,000, and your total assets are less than $250,000, you may be able to file form 990EZ. Either form is due by the 15th day of the 5th month after your accounting period ends. Assuming that you are using a fiscal year starting October 1, 1990 (and ending September 30, 1990), it would be due February 15, 1991. Your state and locality may also have filing requirements. Brad ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 26 Fri Jan 01, 1993 S.BURTCHAELL at 13:11 EST How can incorporating with a minimum number of employees provide tax shelters, if any. The goverment keeps sticking there hand in your pocket. What are the advantages? ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 27 Sat Jan 02, 1993 JSLICK [JACK] at 17:38 EST S. Burtchaell, Well it depends on your definition of shelter. A C corporation allows a profitable business to pay tax at lower rates (assuming that the owners have taxable income also). With an S-corporation the opportunity is there to avoid some employment taxes. So even with minimal employees there are opportunities to save taxes. It depends on the businesses objectives whether a corporation is right for them. However in most cases where a sole proprietorship is providing all the income for an individual and that income is less than $20,000 going the corporation route just doesn't make sense. Anything above $20,000 needs to look at their goals and determine whether a corporation is right for them or not. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 28 Mon Jan 04, 1993 BRAD [Brad Solomon] at 00:24 EST Actually, if the business is basically one that could have been a sole proprietorship, and performs a service rather than something like sales (i.e. a store), it could qualify as a "personal service corporation". In that case, there are no lower rates as a corporation. There are other benefits, and you can still pay out the income in salary (which is reasonable if all the income came from your services). Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 29 Thu Jan 07, 1993 S.CONROY1 [Sonsie] at 23:05 EST Brad, could you expand a bit on the "personal services corporation?" It sounds like something I should look into. I'm currently operating as a sole proprietor. Would switching over to this type of corporation benefit me? Could I cut my 15% SE tax, for example, or fully deduct the cost of health insurance as a cost of doing business? Thanks... =Sonsie= ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 30 Fri Jan 08, 1993 BRAD [Brad Solomon] at 04:46 EST Sonsie, You don't elect to be a PSC, you are one if certain conditions apply. As a PSC, you would still be able to deduct health insurance. Instead of SE tax, both you and the company pay social security, but this comes out the same. You also have the limited liability that incorporating would save. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 31 Fri Jan 08, 1993 S.CONROY1 [Sonsie] at 22:33 EST Brad, I fit the description you gave...a sole proprietor who offers services, not merchandise. Is there an IRS reference you could direct me to, so I could further explore the possibilities? I currently file as a sole proprietor, and wonder if I could do this other thing. =Sonsie= ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 32 Sat Jan 09, 1993 BRAD [Brad Solomon] at 07:48 EST Sonsie, There is no benefit to becoming a PSC - the benefit (if any) is in incorporating at all. Being a PSC means that any net corporate income is taxed at a higher rate. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 34 Sat Jan 09, 1993 JSLICK [JACK] at 17:44 EST Sonsie, Inj addition you also have two tax returns, separation of business from personal accounts, etc. If you are a PSC then higher tax rates apply to any income left in the PSC. If you incorporate you need to be aware of all the rules, its not something to jump at without weighing all the pros and cons. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 36 Fri Mar 26, 1993 S.CALVIN [Scott] at 20:52 EST I've been slowly digging my way through this BB, and I'm starting to get the idea incorporating is probably not going to be worth it for me. I will continue to explore the idea, however. I am the sole proprietor of a tutoring/seminar service in New York City. My gross income is climbing substantially each year, and may approach $40k this year--after expenses it will be more like $30k. I'm not concerned with liability issues, and would certainly be classed as a PSC. I don't =have= an accountant or lawyer to check with on this issue--as a sole proprietor I do all my taxes myself, and am just now approaching the point where I have reasonably organized business records. There's still one little nagging point that will keep my researching whether I should incorporate: New York City has an =unincorporated= business tax of 4%! That's on =top= of city income tax. Does anyone have any general comments about incorporation for a business located in NYC? I know I'll have to investigate my own situation, but is that 4% unincorporated tax meant to somehow approximate taxes the city would get if the business were incorporated, or is it just a gratuitous add-on? --Scott ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 37 Sun Mar 28, 1993 JSLICK [JACK] at 00:00 EST Scott, Given the nature of taxes in New York I would expect that if anything doing business as a sole proprietorship would be less taxing then as a corporation. However you really do need to talk with someone familiar with NY taxation to find out if this is true. You wouldn't be a PSC, since the law only includes specific types of businesses and your's doesn't fall into the types included. Good luck in deciding which way you want to go. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 38 Sun Mar 28, 1993 BRAD [Brad Solomon] at 00:05 EST Scott, I don't remember offhand what the NYC corporate rate is, but, if you plan to pay out all (or most of) your corporate income as salary, NYS & NYC have an "alternate tax," where they do a calculation adding back the principals' salaries. I vaguely recall either a $15000 or $30000 exclusion, then maybe 30% of the remainder, the result subject to the corporate tax. I haven't done NY corporate returns for a while - maybe the state alternative tax went away when the state UBT went away. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 39 Mon Apr 05, 1993 S.NEWTON [Steve Newton] at 17:04 EDT I was a sole prop for 4 years doing consulting work in a "one horse" consulting firm. In my case there are 2 tax advantages to incorportating. First, the corportation can duduct medical insuranse expenses. As an sole prop, I never spent enough to exceed the AGI lid. Second, the corp. can pay my SEP contribution with pre-tax dollars. In both cases the board (my wife & I) held formal meetings and voted to extend these benefits to the employees (me). To prevent paying corporate taxes - at the end of the year, if there's any money left in the corp, a bonus is paid to the employees. The corp ends up with income that equals expenses. In my case, incorporating works better. (I bought a kit ($35) and did all of the paperwork myself. The only other cost was $300 charged by the state of Texas.) ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 45 Mon May 31, 1993 JSLICK [JACK] at 22:23 EDT Well basically what Janet said, limited liability companies are available as an option in some states but there are caveats that apply. First is that these companies are so new that case law isn't available yet to determine how and whether the companies will be treated as something different from a corporation for tax purposes. In MD the law is so loose that depending on how your organizing document is worded you can end up with a corporation or a partnership that doesn't have limited liability. Second, at least in MD, the documents are so complex and have so many choices to make that it typically will cost two or more times that of forming a corporation, and even at that cost there are areas that only the courts will address, and obviously case law is not to be found yet on those matters. For my money I'd rather let others do the experimenting and wait for the issues to be decided before investing the money in a LLC since in most circumstances a S-corp or a limited partnership can achieve the same goals and in those entities there are less unknowns. That said though there are certain situations where a LLC makes sense but those are few and far between right now. A good Business attorney can help you in making the decision but I'd bet on the S-corp or limited partnership for most circumstances. BTW LLC stands for Limited Liability Company. Jack ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 46 Tue Jun 01, 1993 BRAD [Brad Solomon] at 03:08 EDT You also have to find out your state's treatment of S-corps. F'r'instance, NJ does not recognize them. If all your income is from your personal service, you'd _probably_ be better off forming a C-corp and paying out most, or all, of the profits as salary, than forming an S-corp, and ending up paying the state's corporate rate on the earnings. There are considerations, of course, but I just wanted to point out the state considerations. Brad Solomon Marlton, NJ ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 47 Tue Jun 01, 1993 A.ZACK [AndyZack] at 23:15 EDT Hmm. I'm in NJ and didn't even know they didn't recognize S-corps. The business I'm thinking of starting is a literary agency (I'm a freelance editor now and have worked in-house at several large publishers). Since I'd be handling money for clients, it seems to me that incorporating is something of a must. But I could be wrong. Could someone tell me what a C-corp is? I saw it on some paperwork today, and then here. What exactly is it? Thanks. ------------ 2 Home Office/Small Busines Category 7, Topic 19 Message 48 Wed Jun 02, 1993 BRAD [Brad Solomon] at 01:37 EDT AndyZack, A C-corp is just a term used for a normal corporation, as opposed to an S- corp. I understand, it threw me too the first time I heard it, too. Brad Solomon Marlton, NJ ------------