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  1. Collapse Details
    C corp vs. S Corp
    Hello all.

    First time Post-er, stressed out new business owner.


    I have to make the decision as to whether to go C type, or S type corporation. There seems to be a wide array of opinions. I have read books telling me that a C type is the only way to get the true tax benefits of incorporating, and that the pass through S style could be catastrophic to my personal return.

    I've also had an accountant tell me that the S type was the only way to avoid such evil things as state corporate income tax (at least here in PA).

    I have also been told that if a new business would be initially high expense, low profit, an S type would be better, as the expense write offs would lower my personal taxes.

    But my business, in it's current form, would lean more torwards profitable.

    Can anyone with some real small business experience give some advice regarding this tax status decision?

    Thanks.


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    Good question. My wife is an S corporation. Here is Nevada we don't have state income tax. She had consulted a CPA who recommended that she go the S corp route. Since she is now making quite a bit more money than she did when she started out, I'm wondering if she should form a C corp instead, and pay herself a salary as well as myself. Anyone have any thoughts on that?


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    Incorporating
    Incorporating is a tough choice.

    An S-Corp and an LLC will give you liability protection and some tax benefits. Both, however, are "pass through" entities. That means any money (i.e. profit) at the end of the year will appear on your personal tax return as income whether you have acutally received the cash or not.

    An LLC can give the owner money as an owner draw at anytime. Thereby, eleminating payroll tax until the end of the year (depending upon how much you are drawing you may need to pay quarterly estimated tax).

    An S-Corp requires that the owner be paid a salary and payroll taxes have to be withheld.

    A C-Corp allows the profits to be held by the company. Thereby, reducing your personal taxes. However, a C-Corp is taxed on the state level (if you have state income tax) and at the federal level.

    There are other things to consider when forming your company such as your future. Do anticipate having employees? Will you be providing benefits? Will your company be purchasing buildings? And the list goes on.

    I would be happy to talk with you further about your options. Changing your mind after you have set-up an entity can be done but it will be costly. It is best to get it right the first time. I have some articles on my web site that may also be of assistance.

    Please feel free to email me with questions. I am happy to help.


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  4. Collapse Details
    C Vs. S Corp.
    #4
    vthree Guest
    Suzette - Thanks for your post.

    What I do not understand re. S corp is owners need to be paid salary.

    If the business is lucrative enough to pay the owner justifiable salary, there is no issue.

    Problem is during the first year, how to pay the owner when it is owners
    sweat capital?

    How to convince the tax man here? Is there a way we can avoid paying salary to the owners untill business has sufficient income to pay the payroll.

    Thanks
    VJ


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    Salary
    Hi, VJ ~

    That is a great question. In an S-Corp you can't just "draw" money out for personal reasons like you can with an LLC or a Sole Prop. If you take any money out of the company for personal reasons you have to do it as payroll or as dividends.

    The IRS is pretty clear here. The IRS requires a reasonable salary prior to dividends being given. That means you can't take all your "draws" as a dividend and nothing as salary.


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    S-crop vs C-corp
    Hello,

    I currently started doing the paperwork for an S-corp. After doing the paperwork and submitting somthing happened between me sending off my paperwork to the IRS and them receiving it.

    The IRS currently has me as C-corp. At this time I am not sure what to do as I really was planning to have an S-corp. I was reading the responses through out this thread.

    Basically I just started this business so I am not sure what to do from this point. It is pass the time to change it over to an S-corp. As far as taxes I did a 1140-S instead of a 1140. So I guess the IRS has this but not my 2553 form which elects me to be a S-corp.

    I have done some research and the C-corp seems to be more expensive to maintain as I am a one person operation which is why I opted for the S-corp.

    Would anyone have any advice to give on my situation? What can I do? I know that this business wont make alot of income because it is just starting out. Once again any advice would be greatly appriciated.


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    C Corp versus S Corp
    I am really new at this forum stuff. I really do not understand this yet. I will get it soon, I am certain.
    This discussion on S and C Corporation is really interesting.
    My husband and I purchased a business that has 7 employees. Not really knowing much, we went on line and registered the business as a C Corporation.
    We partially dumped everything we owned into this business and found out last year at tax time that we could not claim any of our loss from personal against the business as a C Corporation. The tax people told us we would have to be an S Corporation to do that. Now, here is the scoop, the business struggles very hard just to make ends meet. We could not pay ourselves a salary, there just is not enough money made.
    Is it a loss, the personal funds we used to get this business running?
    Can we change to an S and then file the loss from last year?
    I am really frustrated with this, and really hoping for some help from all of you. Thank you, Janet


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  8. Collapse Details
    Re: C corp vs. S Corp
    I'm not expert --- we'll, I don't have a CPA but I have been filing corporate taxes for the last 4 years and I've done both S-Corp and C-Corp.

    From my personal experience - first, don't trust just anyone and what they tell you - read up on the tax laws yourself. If you're runing your own business, you MUST put the time in and at least glance and the IRS tax publications. They are not that complicate... well.. they are complicated but you still have to do it If you have problems / questions, call the IRS. Yes, call the IRS They're actually not that bad... I've been on the phone with them many a times

    But, back to this S-Corp and C-Corp business.

    Go with a C-Corp. If you ever plan on making money - go with a C-Corp. It may be a bit more costly to keep it but in the long run, you're making the best choice for your business.

    I don't know a lot about other state laws, but in FL, corporations only pay taxes if they have a profit over $5000. Think about it - after paying yourself a salary, paying for your advertising, paying for all the other expenses - are you going to have a profit or just barely break even? If you make a profit or break even - still should be a C-Corp.

    chrome - in regard to your problem with personal loss - can you clarify what you mean? For instance, if you, as a shareholder in the corporation invested money -- that is a shareholder's investment, then that is money that the corporation has to eventually pay you back and if that money is spent by the corporation, then it is an expense on the corporation. Is this what you're doing or something different?


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    I run a small pool biz and it's a registered s-corp. I only take in around $3000/month. When I started this venture 6 years ago I went to 3 different accountants and they all recommended that I set it up as an s-corp and not understanding the tax laws myself I went with what I was told. I have had no problems so far. The only thing I would have liked to change is that I don't have to file quarterly earning reports to the IRS. I was told that this is something you have to request when incorporating. Wish I would have known this as I am not a big fan of paperwork. I can tell you all about your pool if it goes green but taxes is a big mystery to me. Glad I found this place as Tax season is upon us again and my old accountant just retired (must be nice)


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