How Are S Corporations Taxed By The IRS?

By Brendon Pack, Vice President at 1-800Accountant

Corporations are found in all shapes and sizes. From farming to technology to entertainment, corporations represent a part of every industry in the world. If you have the entrepreneurial energy to launch your own corporation, you should take ample time to consider which type of corporate entity to set up. One option is to establish an S corporation.

When it comes to IRS taxes, an S corporation does not pay any federal corporate income taxes as a C corporation does. However, this doesn’t mean it is exempt from taxation like a tax-exempt 501(c)3 non-profit. Rather than incurring corporate income taxes, an S corporation elects to have all of its income, losses, credit, and deductions passed directly through to its owners – or shareholders. The shareholders are then required to report all of this information on their personal income tax returns. Because of this, the shareholders are taxed according to their personal income tax rates, which could vary from one taxpayer to another. S corps are structured this way to help their owners avoid double taxation on the business income they generate.  Owners of S corporations are typically responsible for paying taxes on passive income and any built-in gains within the business.

 

To receive S corporation status from the IRS, a small business must meet several requirements. First and foremost, a business must be based domestically in the United States. It can only have allowable shareholders that include individuals or certain types of trusts and estates. S corporations cannot be established through partnerships or non-resident alien shareholders. In addition, S corps can have a maximum of 100 shareholders involved. They can have one class of stock as well.

 

Let’s say you currently operate an informal sole proprietorship or general partnership. If you want to gain credibility and protection by turning your small business into an S corporation, a business must file Form 2553 with the IRS. When reporting gains and losses in your S corp, you must file Form 1120S.

How C Corporations Are Taxed By The IRS

By Brendon Pack, Vice President at 1-800Accountant

Are you planning on opening the doors to your very own small business? Does the idea of self-employment make you eager for a more flexible and fulfilling life? If so, it’s critical to know about the various types of business structures from which you can choose when formally registering a company with your state. You should also closely examine how the IRS treats each business entity structure in terms of tax requirements. Jumping into a business is one of the biggest decisions you’ll make, and choosing the appropriate business type and tax structure is right up there on the priority list as well.

One business entity type you may choose to go with is the C corporation, commonly abbreviated as C corp. This type of business entity has the structure of a basic corporation. When filing your federal income taxes with Uncle Sam, the IRS classifies a C corp as a totally separate entity that an individual owns. In simple terms, a C corp can be formed when money or property is exchanged among prospective shareholders in a specific business. The reason this is done is for the capital stock of a corporation. A big advantage to operating a C corporation is that it will let you enjoy more tax deductions and other tax-saving opportunities compared to those available to sole proprietors when calculating their taxable income. Deductions are always a nice financial perk because it means more money is kept in the business owner’s bank account since a deduction reduces your total taxable income.

As far as how taxation of a C corp works, the profits that the business entity generates are taxed directly to the corporation itself. As a result, the profits are then taxed to the shareholders of the company when these earnings are distributed as dividends. This creates what is known as double taxation. Due to this complication, a C corp cannot claim a tax deduction when distributing dividends to its shareholders. The shareholders are also unable to deduct any losses that the company incurs.

 

Unlike personal taxes that are due every April, there are numerous taxes that businesses are on the hook for with the IRS. These tax obligations vary depending on the type of business structure at-hand. C corps must generally pay income taxes, employment taxes, estimated taxes, and excise taxes. With the IRS opening up more filing options in recent years, C corps that have assets equal to or over $10 million must file their taxes electronically. C corp owners should use Form 1120 when filing with the IRS.

If you have the desire to register your own C corporation, you’ll be able to enjoy many of the tax benefits that the big companies out there can claim. But C corps may not be the best option for you, so be sure you thoroughly research each business structure and select the one most appropriate for your entrepreneurial endeavors.

5 things you should learn more about for your Startup

Starting a business can be one of the most exciting times in our life. we're creating something, most of the time out of nothing, that can impact a lot of people including yourself! It's natural that when thinking about your new product or service, a lot of times we tend to over-complicate the process. We want to change the world in a day. The truth is, it’s often too much, and too much will either slow you down or never get you started.

Here are five things you should learn more about as a Startup:

1.       Selling- get comfortable with selling. The truth is, every single job has some sort of sell... but as a business owner, your only chance at success is to get comfortable and good at selling yourself, your story, and your product & service.

2.       Business Plan- This is one of the most important steps to starting your business. Take time to put together a plan for your business, and don't forget to look at the big picture, the details, and an action plan.

3.       Content- We live in the age of the internet. The internet is content. Odds are you will have to produce content in your specific field to draw in, educate, and keep your clients. Content, including blogs, research, and education, can be very valuable and grow your business and your value over time. Our advice is to get started early.

4.       Taxes- Nobody likes to pay them. Yet, they affect all of us. The truth is, understanding taxes (and paying them correctly and on time) is one of the biggest hurdles of the small business owner. Get familiar with the taxes that will be involved in your business, and understand their purpose, and their deadlines, to help you better run your company.

5.       Tracking Performance- Keep track of your numbers. They will give you crucial information of how you are doing and will let you make short term and long term decisions going forward. Keeping track of things like visitors, conversion, email signups, etc. will help you understand your business and your customers better.

Our Simple Advice is to always be clear to your audience. Don’t do everything. Identify a niche, and START THERE.

5 Simple & Actionable Tasks to Start your Business Right

1. Write down your idea in a Business Plan

This will help you make important first decisions and create an initial outline for the business. Think of it as your first map. It will help you meditate & plan your Product or Service, Sales, Marketing, Advertising, Costs, and Profit Projections. We created a simple ONE-PAGE BUSINESS PLAN to help you get started.

ONE-PAGE BUSINESS PLAN

2. Validate & Make your first sell

We tend to get very emotional about or first venture baby. An important and hard lesson to learn as an entrepreneur is that you cannot let one idea cloud your perception of what truly will work. So ask yourself, why does this business exist? Does it make a difference? Is it something your audience wants, or something you want your audience to want? Validation from inception, and making your first sell, can say a lot more about your idea than a business plan ever will… so confirm your idea with your market, and see early on if it’s worth chasing.

3. Choose a Business Structure

We have a lot of resources to help you with this part. You can choose to become a Corporation, Limited Liability Company, Partnership, or Sole Proprietorship. You should always consult with a legal and/or tax advisor that can help you choose what fits your business best. Educating yourself on how it will benefit your business can have huge benefits in your liabilities and bottom line.

4. Get a Tax ID#

Getting a Tax ID for your business is as important as it is easy. You can use a service like THIS ONE to help you get a tax ID#. If you feel you can do it yourself, print out an SS-4 application form from the IRS website and you can apply for one yourself. Once you have this number, you have a Tax ID# to conduct business with.

5. Set Goals & Get to work

Before you start making phone calls, sending emails, and tweeting everyone, you want to take 15 minutes to SET GOALS. This doesn't have to be elaborate or detailed. Simply write down 1-3 things you want to accomplish this week. Then, choose the most important of those three, and get it done TODAY! Easy, right? Sometimes the hardest step to take is the first, so get it out of the way so you can move on to the fun stuff.

Follow these 22 steps to start your business right.

1.       Name your Business

Get Started! Write down your  name Ideas & Pick one!

2.       Validate your Business Idea & Make your first sell

The first step is just to get you going. This second step is the most important. It will tell you. You goal here is to find your audience… The more specific the better. See if your idea is expandable (if it will work) or not. Validating your idea will determine if you move forward or go back to the drawing board, so that it seriously and have fun doing it.

3.       Write down your Business Plan

A Goal without a Plan is just a wish. Use a Business Plan as your map, as your blueprint, for your business on a daily basis. It should contain your Story, The Big Picture, The Details, and your Plan of Action.

4.       Choose your legal structure & form your business

Take some time to learn about the different types of entities and see which will fit you best. Form your Legal Business entity… For help, visit simplecorp.org

5.       Get a Federal tax ID Number (EIN)

This number is crucial to running the administration of your business. It will be very helpful in the coming steps, and will help you avoid having to give personal information to Vendors, etc.

6.       Register for State & Local Taxes

Use specific state & local tax guidelines to register your business including employer & sales or use taxes.

7.       Open a Business Bank Account & Financing if any

Use your newly created entity and tax ID number to open a business account. Talk to your financial institution and local SBA office about financing options, and take time to think about funding, saving, & creating a safety net or rainy day fund for the business.

8.       Acquire Space, Furniture, Equipment & Supplies

Find a good Location, Equipment & supplies for your business. This could include all necessities to successfully sell & ship your product, even for home-based startups.

9.       Set up Communication & Email

Create accounts for communication, including email & social media accounts. Take time to research & find out where you target market hangs out, and have your main focus there.

10.   Obtain Business Licenses & Permits

This will only apply if you are conducting a business that requires special licenses or permits to operate. Look info Federal, State, and even Local regulations to set yourself up successfully.

11.   Educate yourself on Laws & Regulations

Spend some time researching laws & regulations that will impact your business and industry. This will help you avoid speedbumps in the future. More importantly, affect your bottom line.

12.   Learn about Employer Taxes & Responsibilities

This is extremely important if you’re planning on hiring employees. Educate yourself on employer taxes & responsibilities, including worker’s comp insurance, payroll taxes, and employee benefits & laws.

13.   Protect yourself w/Insurance, Patents & Copyrights

Get insured with General Liability insurances and other specific insurances that apply to your small business. No matter how small the operation, protection is necessary and important for long-term success. If you have a creation of some kind, look into patents and copyrights if necessary.

14.   Set up Record-keeping & Financial Management

Interview and designate centers of influence that will help manage finances. This could include an accountant or CPA, a bookkeeper, and Financial Advisor.

15.   Build your Outside Team: Find the right help

When it comes to running your business, one of the keys to success is the team you choose to work with. When delegating and outsourcing, you should carefully interview and choose the people you work with wisely. This includes Contractors, Vendors, and Influencers.

16.   Build your inside Team: Hire Employees

If you will have to hire employees, spend plenty of time preparing, interviewing, and choosing the right team. This will be your family, and the expression of your business. Spending time making sure you get this part right is an understatement. This usually will be your biggest investment as a company, so spend your time & attention on meticulous hiring.

17.   Set up a Payment/Merchant Accounts

Setup payment accounts to help you complete transactions with your customers.

18.   Create a logo/Brand

This can always change, but build a logo as a starting point for your business and brand. This will help give you a sense of identity during your early stages and give you something to expand later.

19.   Obtain a Web Address & Website

Get some online real estate for your business. Whether you’re local or ecommerce based, getting some online space for your business will open you and your business to a whole new world.

20.   Prepare a Marketing Plan & Materials

Spend some time planning your marketing & communication to your customers. This could be as simple as business cards, to social networking, SEO, Advertisement, Promotion and Sales.

21.   Set Short & Long-term Goals

We said earlier than a Goal without a Plan is just a Wish. Well, a business without a Goal, has nothing to strive for. It’s like if you were driving without a destination. Take some time to write down some simple short term goals, and some out of this world long term goals. Some thought leaders will tell you to make them “realistic”… I say, you cannot reach out-of-this-world dreams if you don’t have out-of-this-world Goals. Go Big!

22.   Learn & Grow yourself everyday

If you’re not into reading, we won’t tell you to become an avid reader overnight. But we will say, reading books, watching videos, TED talks, YouTube, Podcasts, or any other medium to gain knowledge will grow you over time. If you get used to doing this every single day, you will learn every single day, and grow every single day. Good luck in your Journey!

GET STARTED!

7 Reasons you need to Incorporate Today

So... Why Incorporate?

Choosing how a business is organized, taxed, and protected is one of the most important first decisions you will make as a new business owner.

While most businesses make the decision to Incorporate right at the start of the business, some wait too long and lose valuable benefits year over year. Depending on the business activity, and it's plans for growth, forming an LLC or Incorporating can be a valuable and strategic decision for you and your business.

Starting? Hiring? or Growing? We encourage you to educate yourself on the benefits of forming an LLC, Corporation or Non-Profit. Here's some bulletpoints to get you started. Cheers! 

 
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1. GIVE IT LIFE

The best way to understand a corporation is to imagine it being its own person or "entity". When you form an LLC or Incorporate, you're creating a legal entity, separate from its owner(s). In other words, the corporation exists independent from the owner(s) and its employees. 

In a sole proprietorship or general partnership (where the owners are the business) what affects the owner may affect the business. Any personal debt or liability of an owner or partner allows the creditor(s) to pursue the assets of the business, whether or not the debt or liability has any relation to the business directly.

By forming an LLC or Corporation, the personal finances of an owner(s) remain separate from the finances of the business, making it easier to manage & grow it!

2. TAX BENEFITS

Small Businesses can avoid "double-taxation" by taking advantage of the options given to a corporation by the states. Some options include filing as an LLC (Limited Liability Company) or incorporating & filing as an S-Corporation which allows the taxable income to flow directly to the officers/members without being taxed twice. The best part is that you can do this and still have the tax benefits of the Corporation!

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3. BUILD YOUR BRAND

Branding yourself by establishing a professional identity helps increase credibility with your customers. Most businesses choose to incorporate a business to prove their validity to both customers and providers.

While Tax benefits & Liability Protection are significant, there are also mental & emotional benefits that go beyond the tax & legal stuff.  

What started as an idea becomes reality. Sometimes this psychosomatic step of seeing the business become its own entity will motivate and inspire you to bring growth & success!

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4. REDUCE CHANCE OF TAX AUDIT

Sole proprietors tend to be more likely to file incorrect returns, and quite bluntly, tend to under report revenue or over report deductions. Because of this fact, the IRS tends to audit a much higher rate of sole proprietor tax filings vs corporate filings. For example, in 2006, a Schedule C filer stood a 1 in 32 chance of being audited. For non-business filers, the odds were around 1 in 124. Simply put, sole proprietors are significantly more likely to be audited!

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5. MAKE CHANGES

As much as we like to believe that all business owners will remain forever committed to the success of the business, there are times when an owner or partner will need to leave or even dissolve the business. Regardless of the reasons for the change, having the business be a separate entity allows easy transferring of interest from one person to another, or even dissolution.

 
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6. LIABILITY PROTECTION

One of the big benefits of forming an LLC or Incorporating is the limited liability protection of the shareholders (and the business). When Incorporated, debt and liability against a specific shareholder remains separate from the corporation. The contrary is also true, since debt or liability against a corporation does not open the doors of shareholders' assets to the creditor(s). In a sole proprietorship or general partnership, the owner(s) remain completely liable to any debt or liability placed against the business. Also, if a business is unable to pay a debt, the creditor can go after the assets of an owner(s). The limited liability of an incorporated business is a sure to add protection to the business!

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7. SELL IT

It could be a change, an exit strategy, or your retirement. There are many scenarios where an owner or partner will need to leave, or even sell, part of the business or the whole thing. Regardless of the reasons for leaving or selling, being incorporated allows easy selling of interest from one person/entity to another. If you decide that selling your business is the right exit strategy for you, then you want to make sure you prepare accordingly for Success!

 

3 Steps to Modern Marketing

Act on it | Be Bold | and Share.

1. ACT ON IT- don't over-think it. even when you don't have Perfection, it's better to share your material with the world than to keep it in your head. Jon Acuff says it best, "90% perfect & published always changes more lives than 100% perfect and stuck in your head." -@JonAcuff

2. SHARE YOUR GOALS- tell everyone your plans and what you wish to accomplish. this helps in two ways: you get to perfect it by sharing your ideas and getting other people's thoughts on the idea, and you get to spread your aspiration and get others interested in your plans & goals.

3. KEEP IT SIMPLE- make it easy to do business with you. Be ready and able to give more than you take. When it comes to doing business you don't want confusion, or hard sells. The best way to build a brand and a successful long-term business is to always make it easy to say yes.

One Cab Drive that changed my life

 

I was in Costa Rica on a beautiful summer day in 2012, we had planned an exciting full-day adventure and exploration that we knew would be unforgettable.

The funny thing is, I can't recall where we went that day, or even what activity we did. I can however, remember one life-changing conversation: On a cab.

As you might know, Mexicans have a cultural saying that goes "Si Dios Quiere".

It roughly translates to "God willing".

On the way home (yes our hotel was our Home... at least for that week) we were having a conversation with the cab driver,  about many little things, among them the beautiful weather, scenery, and amazing hospitality we had received during our stay. When we spoke about family, he was happy to tell us about his 5 beautiful kids and a wife that he was very happy to be sharing his life with... He said his hard work and long hard hours were very worth it for them and their happiness.

We took the opportunity to express how we (my wife and I) were planning to start a family soon, and God willing my wife would get pregnant without any complications.

This is the part where I threw in the typical "Si Dios Quiere" (God willing, we can live out this plan).

Well, The cab driver had a different thing in mind. he stopped the cab [in the middle of the road], looked over his shoulder and pointed a finger to the sky, replying "Dios SI quire!".

He said "my friend, in this life you have to realize you can't leave things to chance. You have to trust and believe they will happen. With that being said" the cab driver finished, "don't ever say 'Si Dios Quiere', now on replace it with 'Dios Si quire' and you will cut out the doubt. What you want (a family) will happen and you have to Trust it will."

 

WOW!!! Cut the doubt. Don't leave anything, especially your Life, to Chance. If you have been thinking about getting started, get started! if you have been wanting to get healthier, cut the doubt and go for it! if it is your own business you want to pursue, DO IT! Follow your passion, live your purpose, and get started!

2 be a rock

 

        "And if you listen very hard, The tune will come to you at last.

When all are one and one is all, To be a rock and not to roll."
 

You see one of the best reflections you could ever Start with is that without you, there is nothing. There is no life, there is no purpose, there is no joy, or worry. Without you there is no Story.  You are made of very simple materials but written with the same hand that has written the composition to the universe. You, the Sun, and all of this world, and way WAY beyond this tiny & infinitely complex world, are One. We are part of everything around us, and everything that surrounds us makes us who we are. We are a collection & projection of energy. You are God and God is you. 

So, be a rock. And Roll! 

4 Hashtags that inspire you to take Action

"There are a thousand excuses for failure but never a good reason." -Mark Twain

 

#Plan with a purpose. put it in writing. give it some thought. what's the reason? What's the impact? What effect will it have on you and on the rest of the world? 

#SetGoals. Short Term and Long Term. Think of them like Checkpoints, and make sure they are in line with your Plan. Make them real, and make them Genuinely yours. 

#Execute your Plan of Action. Do the activity. Focus only  on what you can control. Everything else is secondary. Your task at hand should only involve the things you have control over. Do it   to the best of your ability. My mentor once said, if you're going to do something, and you're already doing it, why not make it great. 

#Celebrate your goals. Enjoy the Moments. and move on to the next Checkpoint.

One Action that will change your life, Forever.

This is not a Test. This is Real. This is Life. And you're in the driver's seat.

START. 

With that being said, there is an Amazing quote I like to use when speaking to my fellow business owners and soon-to-be entrepreneurs:

FACT: 100% OF THE THINGS YOU DON'T START, FAIL. 

(Wonderfully said by Jon Acuff in his book

Start: Punch Fear in the Face, Escape Average and Do Work that Matters

First thing to realize is that success is not about perfection, it's about action. We can always re-write later. 

GET STARTED!

It all started with an Idea.

THE SIMPLECORP.ORG STORY

After meeting with thousands of Small Business owners, and serving the Small Business community for over 9 years, we came to realize most small businesses out there are operating without a map.

A Plan. An incredibly crucial instrument to any business, big or small, was missing. Most business owners opened their doors without a Plan, and with no understanding of some of the core benefits that come with owning a business. Even then, a lot of business owners get by just fine without it. Most, however, do not. And we believe it is time for a change. We, like you, understand that Small Business is the driver of our economy. Out of almost 28 million small businesses in the US, about 22 million of them are self-employed and self-ran. The rest (about 6 million) produce over 65% of all jobs. More incredibly, about 543,000 new businesses are started each month!

This really inspires us. If we can tip the needle in this crucial moment, the “start”, we can help thousands of business owners create a better foundation for their business, and more importantly, help them be better informed to make healthier business decisions that will influence their long-term goals. 

"We have gone into business to make a difference by helping educate, prepare and inspire a whole new generation of entrepreneurs. To help them get started right."

We believe in Small Business. And we believe that having a plan, and getting the proper guidance in the beginning of your journey, is the most crucial step for Success. We’ll help setup and start your business right.

All great things start with an idea. And if you have that idea, if you have a passion, waiting to be shared with the world… Get it Started! We’ll help you get started, so you can take your idea from Dream, to Plan, to Reality.

Let's get you Started.