Registering a Corporation

amother

Thu, Feb 08 2024, 5:08 pm

If I register it on my own without an accountant I'll save $200. And for me the $200 is a fortune right now.
Therefore I prefer to do it myself, it's pretty simple to do. I'm just not sure whether I should register it as a C or S. If anyone can help me with this I'll really appreciate it!

amother

Thu, Feb 08 2024, 5:09 pm

groovy1224 wrote:

What made you pick a corporation at all? Why not an LLC or sole proprietorship?

This is not something you should be doing on your own without guidance.

Right. I came to Imamother for guidance Smile

I desperately wanted to save the few $$. But if no one can guide me then I will go to an accountant.

groovy1224

Thu, Feb 08 2024, 5:10 pm

amother OP wrote:

Right. I came to Imamother for guidance Smile

I desperately wanted to save the few $$. But if no one can guide me then I will go to an accountant.

I totally understand wanting to save money, but this is a decision that, if made correctly, will actually save you money in the future so it's totally worth it in my opinion.

groovy1224

Thu, Feb 08 2024, 5:22 pm

amother OP wrote:

Yes, I guess you're right.

Good luck whatever you decide. Im happy to share the knowledge I do have..like, I can almost certainly tell you that you don't want a c corp. And probably not an S corp either, but obviously knowing little about your situation it's hard to say.

If you make an LLC, as opposed to a sole propiotorship, what that means is you are protected from liabilities (like if someone for some reason sued your business, they couldn't come after your personal assets, only the business's. Probably not a huge concern in the custom cookie world, but I guess you never know). In terms of profits and losses, you can choose to be taxed as a corp or a pass through entity, which means earnings/expenses would be passed through to the members and be reported on each member's personal return.

All this to say, there are technicalities/legalities/tax matters that need to be discussed so it's really probably worth paying an account a couple hundred bucks to advise you.

Good luck with your business!

theoneandonly

Thu, Feb 08 2024, 5:30 pm

If you want a separate entity, do an LLC. It will still cost you a few hundred dollars to create it on your own. If you want you can be a sole proprietorship with no separate entity until you take off, and then once you are making money you can afford to pay an accountant to discuss your options and needs.

You never want to be a c Corp (unless specifically advised by a very good accountant and even then I can't see why they would tell you to do that).

amother

Sage

Thu, Feb 08 2024, 5:53 pm

Accountant here - if you can't afford to pay an accountant, you definitely don't want to create an S corp or C corp. At least not at this time.

You're better off creating an LLC (limited liability company) which gives you some level of protection, though you probably don't even need to do that, as you can file on schedule C on your regular tax return even if you're not a LLC.

amother

Thu, Feb 08 2024, 6:00 pm

amother Sage wrote:

Thank you!! Heart

mamadana

Thu, Feb 08 2024, 7:21 pm

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.

amother

Pear

Thu, Feb 08 2024, 7:31 pm

amother OP wrote:

I'm opening a small business selling custom made cookies.
I'm registering a corporation name.
Do I need a C Corporation or a S corporation?

You may want to set up a *single member* LLC, which isn't required to file its own tax return each year. It just needs a schedule-C added to your own personal tax return which will save you on accounting fees. An LLC will also offer you liability protection, way more over any type of corp.

An S Corporation is named after Subchapter S in the Internal Revenue Code. S Corp is a tax status that separates the business from its shareholders, offers limited liability protection, and permits pass-through taxation. After setting up a corporation, you'll need to fill out S election forms to mail out, and wait for a response on approval which is the only way to make it an S corp.

amother

Sage

Thu, Feb 08 2024, 7:51 pm

mamadana wrote:

Ok, I'll bite - how will the s corp save her from paying self employment taxes? S corps are required to pay a salary... I mean, legally. Obviously doesn't matter if you're not planning on following the law.

Also S corps cost more to file a separate return. If $200 is too much to spend right now, you DEFINITELY don't want the extra cost of filing a separate return.

From Google:

Frequently asked questions about S corp payroll
Does an S corp have to have payroll?
An S corporation generally must have payroll to pay its employees and any shareholders who may be considered employees. After the salaries are paid, any remaining business profit may be passed through to the shareholders via distributions.

Do S corp owners need to be on payroll?
S corporation owners who perform more than just minor work for the business typically need to be on the payroll because they must pay themselves a reasonable salary. Owners who take a salary that’s below market value for the services they perform or claim all of their income through shareholder distributions may be audited and penalized by the IRS.

mamadana

Thu, Feb 08 2024, 8:54 pm

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.