If yes, there are a few key things you need to know to incorporate correctly.
What date should your incorporation become effective? If your business is not incorporated, it is likely that you will owe self-employment taxes. If you have not yet filed your prior year tax return for your business, and you are going to owe self-employment tax, it may be highly advantageous to “retroactively” elect to be treated as an S Corporation and get this benefit for your prior year return. If this is your situation, going to an online source, or to our partner, Rocket Lawyer, will not work. Our partner, Action Tax, may be able to assist you in this process, depending upon your timing and activity thus far. As a Small Biz Zoom member, request a phone consultation with us to determine if incorporating your company is the right move, and discover how much you could save on last years tax bill (or multiple years).
How much do you need to take in salary as an officer of your corporation? This is a tricky question, a technical question, and it has a big impact on your tax bill. Yes, you must take a salary as an officer; otherwise, the IRS makes it clear that you will be audited. However, if you take a reasonable salary, you greatly decrease your risk of audit as an S Corp as opposed to a sole proprietorship or partnership. You can consult your tax professional, or as part of your Small Biz Zoom membership, schedule a consultation with our CPA to get answers that will help ensure that you pay your fair share in taxes and no more.
What else is required when you incorporate your business?
The big three are
You now will file two tax returns (corporate and personal),
You will need to pay officer payroll, and
You will need to renew your corporate entity each year to keep it active – a nominal fee to your local Secretary of State. There are a dozen other details you’ll receive with your packet, but these are to big ones.
Download Your Incorporation Packet
The average business saves approximately $6,000 a year by being a corporation. The amount your company sales is entirely dependent upon the profit you recognize for tax purposes. The savings goes beyond taxes though, as you are creating a legal barrier of protection between you and your business. This, plus being far less likely of an audit by the IRS, and having a segregated business structure, makes incorporating an obvious choice.
This do-it-yourself incorporation packet provides all of the following in written format coupled with videos and examples of forms:
How to set up your entity with your Secretary of State.
How to set up your entity with the Internal Revenue Service, retroactively if need be.
How to register your business properly with your local department of licensing.
How to maintain your entity such that you avoid an audit, and are property organized for taxes, record keeping and timely filing of reports required for this entity.
10 Guidelines you need to follow as an S Corporation.
Note: You can purchase this packet and download the details to set up your corporate entity, and set it up fully by yourself UNLESS you could save money by making your effective incorporation date a prior year date. If you can reduce your taxes by incorporating in a prior year, you must contact Action Tax directly.
And, note that we do not provide legal advise, this is solely the federal and state taxing authorities processes necessary to set up your corporate entity.