Registering a Corporation

theoneandonly

Thu, Feb 08 2024, 6:39 pm

mamadana wrote:

As an accountant, I strongly vote S Corp. If you do an LLC you will pay self-employment tax (about 15%) and the S-corp will save you that.

Also, make sure you do the applicable registrations. You need to incorporate in your state, apply for a federal EIN, and register for sales tax (if applicable in your state). Most foods are exempt, however confectionery usually isn't.

Who is she paying to do her payroll as an s Corp if she can't afford $200 for an accountant? And if the earnings are too little to have to pay salary then the self employment tax wouldn't be too much either. She can have expenses and home office expense on a schedule c or LLC as well.

amother

Sage

Thu, Feb 08 2024, 7:26 pm

mamadana wrote:

You're right about the salary, but it's more of a gray area especially when the business is new. There's no clear-cut rule saying when you must start taking a salary. Therefore, chances are that in the first three years of business, she'll be saving more in taxes by being an S-corp.

Another gray area: you can choose to designate a specific portion of your house to this business and you can take a percentage of rent/mortgage interest and other expenses. You can also pay your kids to work for you. There are a bunch of other ways a small cookie business will likely not make enough money to have to pay a salary.

Also from Google: The IRS won't object if your S Corp pays you nothing if your business is earning little to no income. However, when your S Corp starts making money, the first thing you need to do is pay yourself reasonable employee compensation. If there's money left over after that, you can pay yourself distributions.

Regarding hiring your children:

4. Business Tax Structure
If your business is taxed as a C or S corporation, then you’ll pay FICA for your children, regardless of their age. This slightly diminishes the tax savings for S-corps since FICA will be an additional 15.3% tax on money that otherwise might have been distributions.

However, unlike C or S corporations, if your business is structured as a sole proprietorship or partnership (or LLC taxed as either), you can pay your minor child (less than 18 years old) without having to pay FICA.

Regardless of tax withholdings, even if they are all zero, you still need to generate a W2 for your children at the end of the year.

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So you don't end up saving anything if you hire your children but your business is structured as an S corp or C corp.

amother

Blush

Thu, Feb 08 2024, 8:26 pm

You can start your business by just starting. As long as you report income (and business expenses) on your tax return (schedule c on your personal tax return), it's 100% legal. Under your legal name and social. You can file a DBA to do business under a different name and get a tax ID (ein) from the IRS so you don't need to use your social security number.

Keep track of all income and all expenses. Written down, keep receipts. Ideally, keep a separate bank account.

You will pay self employment taxes on the profit, which is about 15%, in addition to income tax.

A corporation is something to consider if it takes off. But get an accountant. If you incorporate, you need to file annual business returns and the IRS is vicious if you file late, even if you don't owe anything. Btdt.