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upstategcock 02-12-2014 05:15 PM

S corporation vs. C corporation
 
I am starting a small business and had a friend recommend in becoming a S corp. I have researched it on line. Any opinions would be helpful between the two. Thanks.

Master Bedroom 02-12-2014 05:26 PM

Re: S corporation vs. C corporation
 
The S corporation was designed with small businesses in mind (hence the S). It was essentially created to allow a small business owner to pay himself a salary and avoid the self-employment taxes...while still being able to draw dividends/distributions. There has been talks over the last few years about lessening some of the benefits an s-corp can provide though. If you are dead set on forming a corporation, then an s-corp would probably be the way to go...but you don't have to incorporate either. There are several options out there and without knowing the nature of your business it is hard to really say.

upstategcock 02-12-2014 05:29 PM

Re: S corporation vs. C corporation
 
Thanks with what I am starting I have to become an LLC.

Master Bedroom 02-12-2014 05:32 PM

Re: S corporation vs. C corporation
 
Quote:

Originally Posted by upstategcock (Post 4086688)
Thanks with what I am starting I have to become an LLC.


You can be a sole member LLC. It limits your personal liability without overly complicating your tax reporting requirements.

M.C. 02-12-2014 06:53 PM

Re: S corporation vs. C corporation
 
Quote:

Originally Posted by upstategcock (Post 4086688)
Thanks with what I am starting I have to become an LLC.

Do not make it a family business you will hate each other more than likely

JaxcockFL 02-12-2014 07:39 PM

Re: S corporation vs. C corporation
 
Depends what you do, etc as far as whether a S corp fits you. As said, you can avoid a lot of the employment taxes, not all though. You have to pay yourself a salary, but you can take profits through disbursements without paying the 15% (+/-) for payroll taxes. That can be very attractive.

You pay taxes through your personal in April, as it flows through. You file your s corp taxes by March 15 to get your K-1 and W-2 and then it's on to April.

Again, it depends on what you are going to do for a living in your new business.

atrain3067 02-12-2014 07:43 PM

Re: S corporation vs. C corporation
 
S-Corp vs. LLC vs. Sole proprietor (Schedule C on your tax return) or partnership really depends on your specific situation. C Corps are designed for larger companies, and have a lot more compliance requirements than the others. This link may help: http://www.sba.gov/community/blogs/c...s-corp-or-both

taylorssc 02-12-2014 08:40 PM

Re: S corporation vs. C corporation
 
visit your local S.C.O.R.E. location. It's an organization that gives free mentoring/advice on small business start ups. All the volunteers are retired executives. They helped me start my first business.

www.score.org

Unless you plan on issuing stock, you may want to consider an LLC.

atrain3067 02-12-2014 09:09 PM

Re: S corporation vs. C corporation
 
Quote:

Originally Posted by taylorssc (Post 4086778)
visit your local S.C.O.R.E. location. It's an organization that gives free mentoring/advice on small business start ups. All the volunteers are retired executives. They helped me start my first business.

www.score.org

Unless you plan on issuing stock, you may want to consider an LLC.

:thumbsup:

Score's a good source too! Can't believe I didn't think of them. If he's still there, Norm Paige is a great guy to talk to. Several years ago he was, and if he didn't know an answer, he could always point me to someone who did.

JerseyBird 02-12-2014 11:29 PM

Re: S corporation vs. C corporation
 
Quote:

Originally Posted by JaxcockFL (Post 4086759)
Depends what you do, etc as far as whether a S corp fits you. As said, you can avoid a lot of the employment taxes, not all though. You have to pay yourself a salary, but you can take profits through disbursements without paying the 15% (+/-) for payroll taxes. That can be very attractive.

Just be careful in that regard - we've had issues with the IRS scrutinizing S Corp shareholders taking distributions as opposed to salary, for that very reason.

As already stated, single member LLC would be the simplest way to go, but it does depend on your overall situation.

DJCatfish 02-13-2014 01:07 AM

Re: S corporation vs. C corporation
 
NVM.

JaxcockFL 02-13-2014 11:33 AM

Re: S corporation vs. C corporation
 
Quote:

Originally Posted by JerseyBird (Post 4086881)
Just be careful in that regard - we've had issues with the IRS scrutinizing S Corp shareholders taking distributions as opposed to salary, for that very reason.

As already stated, single member LLC would be the simplest way to go, but it does depend on your overall situation.

You take distributions on top of a salary, not as opposed. The rule of thumb (as I heard it anyway) is that you pay yourself a reasonable salary and then take a disbursement. If I were to try to avoid taxes all together by doing that, I would bet on the IRS giving me the interior exam.


That leads me to another point. Get a good CPA that you can have do your taxes, answer questions and keep you out of the doghouse. Make sure you know your dates for filings for employment taxes if you have employees, self pay for yourself, your tax file date, etc.

JerseyBird 02-13-2014 11:56 AM

Re: S corporation vs. C corporation
 
Technically it's opposed to - say your business earns $100,000 for the year without paying yourself anything. You could pay yourself $90,000 salary with about $10,000 employment taxes (I'm using nice round numbers for convenience) so your profit is zero, and you're paying payroll taxes on it all.

Or you could pay yourself $45,000 with $5,000 employment taxes, and reporting $50,000 as profit on your K-1. You've now avoided the payroll taxes on the $50,000 - congrats! But the IRS may not like that.

Obviously it's a bit trickier in "real life" as you would be paying yourself throughout the year and would have to keep track of how the business is going, which is also a good reason for a CPA besides what you mentioned :thumbsup:



EDIT: I realize I'm sorta repeating your point from the post I originally quoted, so to answer the issue of on top of/opposed to - when you work for The Man, you're pretty much stuck with the salary you get; when you ARE The Man, salary is flexible :mrgreen:

MountainCock 02-13-2014 12:12 PM

Re: S corporation vs. C corporation
 
I own two businesses. One is small, and one is mid-size. Both are LLC's, but for tax purposes they are S-Corps. Talk to your accountant. He/she will know exactly what you should do.

JaxcockFL 02-13-2014 12:24 PM

Re: S corporation vs. C corporation
 
Quote:

Originally Posted by JerseyBird (Post 4087063)
Technically it's opposed to - say your business earns $100,000 for the year without paying yourself anything. You could pay yourself $90,000 salary with about $10,000 employment taxes (I'm using nice round numbers for convenience) so your profit is zero, and you're paying payroll taxes on it all.

Or you could pay yourself $45,000 with $5,000 employment taxes, and reporting $50,000 as profit on your K-1. You've now avoided the payroll taxes on the $50,000 - congrats! But the IRS may not like that.

Obviously it's a bit trickier in "real life" as you would be paying yourself throughout the year and would have to keep track of how the business is going, which is also a good reason for a CPA besides what you mentioned :thumbsup:

That's a pretty good example. I like round numbers to make it easy too. From what I understand (FWIW) it would be a salary reasonable to the position that you hold. Let's say you are owner of a construction company that made 100k in profit (net), and you pay yourself a salary of 10K. That's probably not reasonable. A 50K salary might be more reasonable, as GM's for construction companies are probably in that range somewhere. You are still going to get nailed on fed income taxes, so it's not like you are avoiding everything. CPA's could help here, as we both apparently agree.

I use HR Block because my CO taxes are pretty easy and my co is a part time thing. I remember hearing in another office them explaining to an owner that they were going to have to pay themselves a salary to get things right. It was kind of funny. "Well, yes, but you really can't do that."

Oh, on another subject, when / if you get sued someday, make sure you spend the money for a good lawyer. They can save you in the long run by getting things suspended / dealt with more quickly.

JerseyBird 02-13-2014 12:32 PM

Re: S corporation vs. C corporation
 
Quote:

Originally Posted by JaxcockFL (Post 4087088)
That's a pretty good example. I like round numbers to make it easy too. From what I understand (FWIW) it would be a salary reasonable to the position that you hold. Let's say you are owner of a construction company that made 100k in profit (net), and you pay yourself a salary of 10K. That's probably not reasonable. A 50K salary might be more reasonable, as GM's for construction companies are probably in that range somewhere. You are still going to get nailed on fed income taxes, so it's not like you are avoiding everything.

Haha thanks, and very good example on your part. I added an EDIT to my post to clarify the on top of/opposed to issue, and also wanted to add that a big factor is how large your business is. If you're doing everything yourself with no other employees, you best be taking virtually all of your profit as salary; if it's a larger company with employees then there's a little more flexibility as to a "reasonable" salary/distribution on top

Master Bedroom 02-13-2014 04:25 PM

Re: S corporation vs. C corporation
 
Yes, an s-corp owner must pay themselves an adequate or reasonable amount of compensation which is determined on a case-by-case basis but driven by the respective market for that business. The bonus of being in an s-corp is the shareholders share of net income is passed through avoiding the self employment tax, but it can also be characterized as distributions, also avoiding self employment taxes. This is what the IRS is looking out for, as mentioned above. The company will still be responsible for all payroll and unemployment taxes, including the owners share. Best bet will be to consult an accountant and find out what is best for your particular business. While you may save some money in becoming an s-corp, you will also incur more costs in bookkeeping, tax reporting etc..


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