This week we are looking at reasonable compensation, a legal necessity for anyone running a Corporation. Reasonable compensation is connected to one of the most fundamental parts of working for a company – getting paid – and yet it’s so widely misunderstood. When you form an Corporation, you create a separate, legal entity that ‘earns’ money. You then pull your wage from those earnings and pay whatever payroll taxes you owe.
In order to close a loophole wherein those running the corporation could ask for an extremely low salary, pay next to no payroll taxes, and then close the wage gap with distributions, the IRS requires that all corporate officers and executive be paid ‘reasonable compensation.’ But what constitutes reasonable compensation is a little more murky.
Who needs to be concerned with reasonable compensation?
Anyone that is runs, or helps run, a C-Corporation or S-Corporation must be reasonably compensated for their work. Continue reading
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.
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.
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.
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.
Welcome to our weekly business basics post! This week we decided to explore a specialized legal entity called a professional corporation (PC). Now most of those who know a little bit about corporate law probably know that there are two, main types of corporations – S-Corps, and C-Corps. But in addition to these, there are a few other specialized structures that are important to keep under the belt of a small business, like the professional corporation.
So what is a professional corporation?
This article was originally printed on LearnVest.com.
You’re free! Free to sleep in until 11 a.m., free to work while your adorable toddler plays at your feet, free to … keep really good records of all your expenses for your taxes.
We know. Not so fun. The reality is, being self-employed can be awesome for 11 months out of the year, and then come crashing down on your head in the form of lost receipts and unpaid estimated taxes in April. We want to save you from that sinking feeling. Read on for what every freelancer needs to know for your taxes.