Want to know how to form a S Corporation?

Before you start a business, be sure to do your homework. Hire a professional to help you through the process, review the advantages and disadvantages of each type of business, and establish business lines of credit so that you can have sufficient capitalization for your venture.

The first step is to take off your do-it-yourself hat. If you want to be successful in business, it’s important to surround yourself with others who can guide you through the process and avoid costly mistakes. That’s why you’ll want to hire a professional to take care of matters that you’re not familiar with. Before you file the paperwork, hire a professional business advisor who can walk you through the process and will be available to help you in the early stages of your business. Ideally, the company you seek does more than just form the S corporation. As you know, 80-95% of business owners fail within 5 years. The key is for that company to provide you resources to help grow your business to the next level!

There are several advantages to forming an S Corporation. Here are just a few. Check with a professional business consultant for a full list of advantages:

You won’t pay corporate taxes. This means that you won’t have to pay the double taxation penalty that corporations must pay. This means huge tax savings for the owner(s) because it passes through your personal income taxes. However, you’re expected to pay yourself a reasonable salary by industry standards. Your salary is taxed at 15.3%, the same amount as self-employment tax. The IRS keeps an eye on businesses that pay unreasonably low salaries in order to avoid taxes, so be realistic when you determine your salary to avoid the IRS red flag.

You’ll have heightened liability protection. While you won’t be protected for everything, for the most part, you personal property is protected when you’re dealing with creditors, liens, and lawsuits. Become familiar with the liability protection that is available (and not available) by forming an LLC taxed as an S corporation vs. just an S corporation.

Taxable gains are reduced. If you should ever decide to sell the business, you may pay less on taxable gains than you would with a corporation.

Once you’ve hired a consultant and have decided to move forward, you’ll have to file Form 2553 with the IRS to get started (keep in mind you may have to file a similar form at the state level also). Here are some of the requirements:

You cannot have more than 100 shareholders. If a husband and wife jointly form an S Corporation, they are considered as one shareholder. Certain trusts, estates, and individuals qualify as shareholders in the S Corporation structure, as long as they are American citizens. This is a problem if you are looking to have investors and you later realize that an investor may not invest into your S corporation as a Corporation, LLC taxed as a partnership or foreigner.

All shareholders agree to the S Corporation structure. Presumably you’ll all be in agreement but if you’re not, you cannot form an S Corporation entity.

You must form your domestic company within the United States. Please check with individual states because laws vary regarding business requirements.

Once you’ve filed the paperwork, be sure to plan ahead and establish business lines of credit. Credit is awarded according to the cash you have on hand, not your need for it. Stop using your personal credit cards and pay down the balances. The more responsible you are personally, the more likely you’ll be able to establish credit for your business.

Starting an S Corporation does not have to be a headache. Consult with a professional so you’ll avoid the costly mistakes that come with inexperience. Then you can focus on taking your business straight to the top of your market.

For years, Delaware has been considered to be the prime state to incorporate and still holds the number one position for registered corporations. However, what you may not know is that Nevada has become the choice of many business owners who want to form a corporation and has been closing the gap to number of filings with Delaware in recent years. Before considering your options, you should know the advantages you’ll gain if you start a business and incorporate in Nevada.

You may wonder if incorporation is the right choice for your business. Even if you’re a one-man operation, incorporating (or forming an LLC) may be the best business entity for you. The major reason to incorporate is that it protects your personal assets from business debts, helps keep the IRS off your back (because a sole proprietorship is more likely to be audited), a better marketing advantages (which sounds better as you introduce yourself, the owner operator or the CEO of your company) and helps you get more access to cash and capital!

If you’re looking for a state that allows more protection and levels of “hoops” to jump through for those looking to get access to your money, the small investment to start in Nevada and foreign register (or qualify) to your home state may be very much worth the extra investment. Keep in mind, that many may tell you to keep it simple, which of course is inversely related to asset protection!

Here are the advantages that you can benefit from if you incorporate in Nevada:

It’s Extremely Difficult for Anyone to Pierce Your Corporate Veil!

First, what exactly does “piercing the corporate veil” mean? When you form a corporation you must follow certain corporate formalities. If your corporation does not comply with all relevant corporate rules and regulations, keep accurate records of meetings by minutes, or if the corporation commingles funds, your board of directors, officers and shareholders could be held personally liable in the event of a lawsuit. “Piercing the corporate veil” refers to having personal assets exposed in a corporate lawsuit.

How does Nevada feel about this? Nevada has a tough attitude about piercing the corporate veil, which is why major corporations domicile in Nevada. Essentially, Nevada says that unless they can prove fraud, your corporate veil will not be pierced! That provides an awesome degree of protection for your personal assets.
Your Officers and Directors Can Be Indemnified.

In 1987, the Nevada Legislature passed a revolutionary law that permits corporations to place provisions in their articles of incorporation that eliminate the personal liability of officers and directors to the stockholders of Nevada Corporations.

Nevada Corporation Code allows for the indemnification of all officers, directors, employees, stockholders, or agents of a corporation for all actions that they take on behalf of the corporation that they had reasonable cause to believe was legal. This indemnification can include any and all civil, criminal and administrative action. These two laws can provide you with complete protection for the officers and directors of your Nevada Corporation, as long as they act prudently in their roles.

Delaware and a few other states soon adopted lesser versions of this law, but Nevada’s law remains among the most thorough and comprehensive in the country.

Always do your research to determine your best course of action. For many people, however, Nevada offers a great mix of protection and flexibility when it comes to protecting your assets in today’s difficult economic environment.

If you have a home-based business, you might be confused about what you can and cannot deduct as reasonable expenses. Some home-based businesses make critical mistakes and get red-flagged by the Internal Revenue Service. With a little guidance, you can start a business that will stay under the radar and keep you out of hot water:

Understand home office deductions. While you don’t have to have a separate room as a home office, the area you use must be used exclusively for conducting business. This includes a place where you meet clients, patients, or customers. You can also claim a home office deduction if you store inventory for your business. In the strictest sense of the word, a home office cannot include personal items, such as personal mail, your children’s toys, etc.

Incorporate the business. The IRS keeps an eye on home-based businesses. In fact, sole proprietorships, especially those that are home based business owners, are more frequently audited than corporations. One tactic that you can use to decrease your chance of an audit is to incorporate (form an LLC or corporation) your business. Incorporated businesses are audited far less frequently than home-based businesses. The IRS is more likely to question deductions in a home environment than a corporate setting.

Keep separate bank accounts for personal and business use. One of the biggest mistakes that small businesses make is to combine both personal and business expenses. Keep separate accounts for personal and business use. In case of an audit, it’s much easier to refer to an account that is used for one purpose than to wade through 12 months of personal and business expenses and attempt to separate them.

Deductions should be reasonable for your business. Avoid extravagant deductions. Another red flag for you home business is when the deductions are high in comparison to your income or the industry norm. Obviously, you’ll have deductions, but over-the-top claims will catch the eye of the IRS. If you have large deductions, keep the proof on file for at least three years.

Use specific amounts. Most costs don’t end in rounded numbers. Be specific. Rounded numbers imply estimates, and this could flag your business for an audit. Also, if you believe that a deduction will flag you for an audit, attach proof to substantiate your claim.

File online. Math errors are another audit magnet. While one small error probably won’t create a problem, multiple errors will most likely bring attention to your business and flag you. When you file online, the software will do the math for you, eliminating the margin of error.

Don’t underreport earnings. Keep in mind that in this technological age, the IRS can easily find your earnings. Don’t be tempted to underreport your income, or you could find yourself at the losing end of an audit.

Run your business like a business, not a hobby! Use some type of accounting software to track your monthly revenue and expenses so you can track your profit and loss. Running your business based upon your online checking account balance and “let’s just see how it goes,” sounds more like a hobby to the IRS vs. a real business.

Operating a home-based venture is a rewarding experience and doesn’t have to create IRS headaches. Know the tax laws, keep good records, and your home business will thrive. For more information about what you can and cannot deduct as a business expense, go to the Internal Revenue website and download Publication 587: Business Use of Your Home.