Incorporation is one of our specialties, and many of our clients come to us because they want to incorporate their business. After all, incorporation helps protect you in the event of a lawsuit, and forming a separate business entity helps separate the company’s debts from your private assets. However, our customers also often ask us about a real caveat to incorporation – double taxation. After you incorporate, your business has to pay a tax on any income that it earns, subject to the federal and state corporate income tax rates. On top of that, you still have to pay tax on income you earn from working for the corporation. Effectively, this taxes the same amount of income twice, and that heavy burden frightens many small business owners, most of whom don’t have much extra capital to throw around. There is, happily, a way to avoid double taxation, and it is the subject of our Business Basics post for this week – filing for S-Corporation status.
Chapter 1, Subchapter S of the Internal Revenue Code allows smaller businesses to avoid paying federal, and usually state, corporate income tax. S-Corporations are the most popular type of corporation in the United States, with 61.9% of all active corporations filing Form 1120S to apply for S-Corp status.
In order to qualify, your corporation must have fewer than 100 shareholders and issue only one class of stock. If your corporation qualifies, you can file for S-Corp status, which will allow any income earned by the corporation to pass through the business, untaxed, directly to the shareholders. You, of course, still have to pay your personal income taxes, and by law must take a reasonable compensation as a wage. But your corporate income, in most cases, will stay untouched.
Senen Garcia, Esq. of SG Law Group
Accountant, attorney, and B Corp movement supporter Senen Garcia, Esq. got his entrepreneurial start at an early age. The sole owner of two businesses before completing his bachelor’s degree in Business Administration with a concentration in Entrepreneurship and International Business, Garcia opened his accounting and tax practice before receiving his undergraduate degree. While running said business, he completed his Graduate and Juris Doctorate degrees and now operates SG Law Group in Florida which assists clients with their corporate, real estate, estate planning an property insurance claim needs.
Today he’s giving us a look at how he got interested in the B Corp movement, what he believes Benefit Corporations need in order to succeed and why the real benefit behind the B Corps has a lot to do with marketing.
One of the first decisions every business owner needs to make is what entity to file their business as, and that choice is typically between LLCs vs. Corporations. Really the decision comes down to what fits the needs of the business owner and the business, but there is still discussion on which entity is best. Here at MyCorp, we gathered together a panel of professionals to get their expert advice on LLCs vs. Corporations and which is the best to form for your business. Which side are you on?
1. “Generally speaking, corporate status is preferable. Banks typically don’t view LLCs as favorably during the loan application process and corporations don’t pay taxes on fringe benefits. These include group-term life insurance, medical reimbursement plans, medical insurance premiums, and more.”
- John Boyd, Principal, The Boyd Company, Inc.
Tim Frick, Principal at Mightybytes
For Tim Frick and the team at Mightybytes, sustainability means more than trending on a Google search – it’s how they do business. A full-service creative firm for conscious companies in Chicago, Mightybytes provides branding, content strategy, and web based services to its clients along with being a certified B Corporation. They’re passionate about making a social impact with their work to make the world a better place, even if it happens, “just one small pixel at a time.”
We asked Tim five questions on his business and he gave us some pretty amazing answers on how he left corporate America behind for the entrepreneurial lifestyle, the bootstrapped beginnings of the company, and how in order to be an entrepreneur you need to walk the walk.
1) How did your business get started?
After a brief career in corporate America I started freelancing in 1995, which eventually evolved into what is now Mightybytes. The freelance lifestyle was attractive to me due to the freedom it offered and the DIY philosophy of being an entrepreneur. Quality of life and doing impactful, cause-driven work I can be proud of is at the core of who I am as a person. We imbue those principles into all we do at Mightybytes.
Connecticut is a state with a long and storied history. European colonists established what would eventually be Connecticut back in 1636, and towns sprung up on the banks of the Connecticut river, leading it to be called the River Colony. Largely due to a war with the Pequot people that inhabited the area, these river towns created a central government to pool resources and raise a militia. After the Pequot War the population swelled, and Connecticut received its royal charter in 1662.
Both it’s involvement in early American history and its natural beauty ensure Connecticut remains a top tourist destination – state officials estimate that tourism generates around $14 billion for the state economy. Well in line with its revolutionary history, Connecticut is also home to many of America’s major gun manufacturers, including Colt, Stag, and Mossberg.
No, you aren’t having Déjà vu - we’ve done a business basics on B-Corps before. However, we decided to revisit the benefit corporation because there are still so many question surrounding the new structure. In just a few short months, eight more states have enacted legislation to recognize benefit corporation, bringing the total up to twenty, if you include D.C. And, as more and more people weigh the pros and cons of forming a B-Corp, the inevitable question of ‘how do you even run one of these things?’ is bound to come up. Happily, running a B-Corp isn’t much different than running any other type of corporation.
Benefit Corporations: Part Two!
By Greg Lindberg, 1800Accountant.com Writer
Decision-making is a huge part of being an entrepreneur and, eventually, a start-up business owner. One of the decisions you have to make during this often challenging process is to settle on a specific business entity to operate. An S corporation is one option you can go with. 1800Accountant.com, a partner of MyCorporation, recommends understanding the following information about how S corporations are structured and taxed before choosing to set one up.
The term “S corporation” originally took on its name from Subchapter S of Chapter 1 in the federal Internal Revenue Code. In general, an S corporation does not pay federal income taxes at the corporate level. However, this does not mean it is exempt from paying taxes altogether. The difference with this type of business entity is that it elects to have its profits, losses, deductions, credit, and all other activities passed through to the shareholders who are invested in the company. These shareholders must report this financial activity on their personal income tax returns.
By Greg Lindberg, 1800Accountant.com Writer
Before you receive the hard-earned title of being a newly crowned business owner, you must weigh the different types of business entities available to you. Each entity is designed uniquely when it comes to how the IRS treats it. Considering the tax obligations that apply to each entity is a must to make a wise business decision. 1800Accountant.com, one of MyCorporation’s partners, offers a few pointers to consider on how LLCs are structured and taxed.
Today, our guest poster Justin Krane offers up a step by step plan on how to stay on top of your taxes and how to avoid putting them off till the last minute. Additionally, you can join Justin and our CEO Deborah for an amazing financial webinar on May 29th at 1PM PST/4PM EST. In this webinar, Justin will teach you how to create high quality goals and the financial strategies to put in place to work towards achieving them. You in? We are! Register by clicking here.
You are trying to back away from them but their stank is just ridic? They have no idea how bad their breath is! Especially when they eat the onion bagel with lox cream cheese! You’ll do anything to avoid their halitosis.
Got me thinking. Do your taxes have bad breath? Your taxes only end up stinking if you put them off till the last minute. It stinks to have no idea how much money you owe the IRS. Give your taxes a breath mint! No more scrambling the last few days before taxes are due. No more tax surprises. No more bad breath.
How you plan your taxes is most likely how you plan your financial life. It’s time to be proactive, not reactive! I want your financial life to be easier for you.
For this week’s post we will get to know one the incorporation options a bit better and learn what it has to offer a new entrepreneur: the S-Corporation!
First off, what is an S-Corporation?
Well, an S-Corporation (also known as the S-Corp) is a special type of corporation that draws its designation from subsection S of the tax code. To start an S-Corp, a small business owner starts a C-Corporation in the state where it is headquartered, then files for S-corporation status with the IRS. While an-S Corporation is similar to a C-Corporation, it has different income and self-employment tax regulations.