When you open your business, you are going to have to make the decision to incorporate. For many small businesses, they file as a Limited Liability Company. While this is good, it does not give all of the tax advantages a corporation does.
There are two types of corporation, the S corporation and the C corporation. The S corporation is considered a lighter version of the C corporation as it can offer a perpetual existence, protection of limited liability and investment opportunities. Taxes have to be filed yearly so they go on the fiscal accounting year from January first to December thirty-first.
Advantages of a S Corporation:
- There are no double taxes. The corporation pays its taxes and can use the salaries as a tax write off. Those on a salary have already paid in their taxes so they have no further liability. C Corporations are taxed as a corporation and the owners pay taxes on the dividend.
- In the event an owner leaves the company or passes away, the corporation will continue to exist.
- C corporations have to file their taxes quarterly where an S corporation only has to file their taxes annually – by March fifteenth.
- Employees, shareholders, officers and directors have a limited liability. Should there be a lawsuit filed against the company, their own assets are protected from the lawsuit.
Disadvantages of a S Corporation:
- S corporations have no more than one hundred shareholders.
- There can be some ongoing expenses like filing your Articles of Incorporation with the state you choose by using a registered agent.
- S corporations have restricted ownership. Only a legal United States citizen can be part of a S Corporation.
- If the taxes are not submitted properly, the S corporation may be terminated.
- The Internal Revenue Service does look closer to S corporations because salaries or dividends are taxed differently.
It was mentioned above that you can pick the state you want to incorporate in. There are a couple of states that are friendlier and more cost effective to file your Articles of Corporation. Nevada is one of those states. Nevada Discount Registered Agent, Inc. is a great company to use to incorporate your business. They will work with you to get your business incorporated in Nevada and send you annual reminders to re-up your corporation.
Checklist on Forming Your Corporation:
- First check with the Secretary of State if the business name you want has already been used. If the name has not been used, you may be able to reserve it.
- Using Nevada Discount Registered Agent, Inc., file your Articles of Incorporation – they file it with the Secretary of State.
- Divide the stock among the shareholders.
- Get your Employer Identification Number from the Internal Revenue Service – this can be done online and only takes a few minutes.
- You will have to file your corporation with the state you choose to do business in. There will also be requirements for state and local business licenses.
- In order to be a S corporation, you must file form 2553 from the Internal Revenue Service within seventy-five days.