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I was just what wondering people's thoughts were on being an S corp versus a sole proprietor for tax purposes. I'm told it says on taxes when you're an S corp, but then there's paperwork you'd need (at least I would) an accountant to do for you quarterly.
Anyone who has or has had an S corp and thinks it's good or not so good?
I *think* there's an article planned for the JCR on this very thing -- at least, they're gathering input right now.
I have an article coming up on Cheap and Sleazy that talks about the basics of taxes and CRs, but it doesn't get into such entities as S Corps beyond the obligatory "talk to a professional" ... but I might be able to come up with something ....
Depends how much money you make. I've heard people throw out the figure $100,000/year before you should consider incorporating.
The only quarterly paperwork you'd do is if you pay yourself a salary and take out taxes, otherwise it's one tax return, due one month before the individual returns, with an automatic $800 to the state every year.
My husband wants both of us to incorporate, but what a PITA. Basically a company like PayChex has to cut you a check to pay your bills because everything has to go through the corporation. I've been reluctant to do it for years. Our accountant says we could save an additional 10,000 a year if we do so. We still haven't done it.
Kelli, I'm trying to figure out how much I should be making to make it worth it. My accountant told me I'd pay him about 6 or $700 a year to do the quarterly payroll and taxes. But he would do all that. He says I can draw whatever salary I want out of the corporation and that's the amount I would pay taxes on quarterly. So it sounds simple enough, at least an S corp does, if he's doing all the paperwork. But for $10,000 a year, if that's what you'd save in "taxes" I'd sure do it. But with what you and your husband make together, I bet you'd save more than 10,000.
Like Judy said, I wouldn't bother if you make less than 150K a year. What I've been told is every paycheck you get has to go into a special account that you cannot access, then you have to get a company like Paychex or maybe your accountant to cut you a check every month, not just quarterly. So every dollar you get has to go through a third person/company. So basically it's like you're an employee of the corporation.
What if you have no money in your acct and you're going to bounce a check, for an example, you have to get this third entity to transfer the money to you. What if it's on a weekend or holiday and they're not around? Anyway, you can understand my point. I don't care about the 10K just because it's too much of a pain. It would be nice to pur all our cars under the corp, though. Guess you get a big break for that too. We'll probably end up doing it but just dragging the fee right now. My husband should do it more than me I think because he has an employee that works for him, his assistant.
I just want to get my hands on my money when I need it. Sort of makes me nervous.
Kelli, I have not hear it works that way. A friend of mine who makes under 100 a year has been an s corp for years. She says she just has to leave 17 percent of every paycheck in her s corp account to cover her taxes and then she draws what she needs as she needs it from the account. She says she ends up paying 17 percent of her gross in taxes overall.
Maybe "incorporating" that we were told to do is not an S Corp and something else, because multiple people - three accountants and a stock investor - have told me it is set up the way I described above, which is why we haven't done it. I thought it was just called "incorporation."
Kelli, there's S-corps, LLCs and C-corps. What my accountant has explained to me how it would work is different than my friend's but she does have an S-corp.
So I still need to research just how the S-corp's checking account would work as far as draws/salary and paying taxes each quarter into the corporation. But I would think for you, a simple S corp would save you enough money in taxes that it would be well worth it.
Sounds like there's a lot of different types; i.e., C-Corp, S-Corp, etc. Maybe it was a C-Corp. Now I'm not sure. One of these days' we'll get around to it......maybe.
Kelli and Kerry, I wonder if the way these things are done is different in different states too? That could be part of why you've heard different things?
I did have an S Corp for a while, but I was not good at keeping all the bookkeeping straight, so now I'm just a sole proprietor, I guess.
I did have to pay my CPA I think $700 or $800 a year to do it the S Corp way. But I did pay less taxes. I'm still not really sure if it saved me money since my CPA bills were so much bigger. Finances are not my strong suit!
Maybe S Corps are better for people who are very meticulous with their accounting and can handle keeping very close track of everything, making sure that every business expense comes out of the business checking account and not the personal checking account, etc.
Kerry, if you do decide to do an S Corp, let us know how it works!
Hi, I thought I would chime in since I've been an S corp for many years.
I incorporated 20 years ago as a new reporter. My main reason was because I wanted to buy a house and buy disability insurance, but as an IC my income was always lower than my expenses, hence I was denied a mortgage and disability insurance. I was also single and had no hubby income to rely on. By incorporating, I was able to receive a W2 instead of a bunch of 1099s, which in turn gave me a credit rating which I was able to use to get a mortgage, et cetera.
I am an S corporation. I have never had a tax due for my corporation because my expenses always eat up any profit I would make, therefore the corporate tax is zero.
As an S corp, my income is split into two categories. I take half as wages/salary/tips for which I get a W2, and the rest is paid to me through corporate dividends, which there is no income tax on. So for example, I could take $40,000 in wages and $40,000 in dividends, yet only pay "income" tax on the first $40,000. There is a dividend tax, but it's not as high as the income tax. It's a pretty good deal. Currently I reside in Texas, so there is no state income tax to file. When I was in Michigan, I had to file Federal 1040 and Michigan State income tax and I always owed money for both.
I pay myself out of my Chase corporate account to my personal Chase account electronically. No payroll company involved. Whenever I need money, I just make an online transfer or I can write a check to myself. In addition, I take money weekly/monthly from the corporation business account into a savings account called Retained Earnings, which is used for my taxes when they are due. I file my corporate taxes once a year, and pay my personal 1040 taxes once a year. I believe my accountant charges me about $300 for each return. He is a CPA.
I started using QuickBooks Online earlier this year. I link my business bank account and it automatically brings all my financial info right in. I am able to run reports for the things I pay out and the money coming in. I track my subcontractor scopists/proofers and also know when agencies owe me money based on the invoices I generate, which sometimes I send to agencies, or just hang onto for recordkeeping to know who owes me what when. QBO has been very helpful.
I have a Chase business debit card and business checkbook. When I get gas or pay for parking, get my car fixed, new tires, auto insurance, I use the business card or business checkbook. Also if I buy office supplies, I use the business card. Software support, seminars, association fees, anything to do with court reporting gets paid out of the business account. I write off 80% of my auto expenses since I use my car for personal as well.
I just do my banking as usual, nothing special, and I give my accountant access to my QBO, and let him sort everything out. QBO organizes everything for me because there are charts of accounts, like subcontractors, gross earnings, accts payable/receivable, gas, parking, insurance, travel which are already set up. I just make sure I assign each transaction to the proper account and let my accountant run the reports he needs. QBO also memorizes my transactions and knows for example when I go to Texaco, it's for gasoline.
Hopefully this is helpful to those considering incorporating, but please feel free to ask questions on anything that's unclear.
Rebecca, that you so much for your reply!