Subchapter S Form

Self-employed? When to graduate from sole proprietorship

When Darin Edmonds started Waterproofing Solutions, Inc. earlier this year he knew making a go of it wouldn’t be easy in a struggling economy . But he was determined to get things off on the right foot, and to him part of doing that was putting a wall between his personal and business assets by setting up a Subchapter S Corporation.

“When I began in this business 21 years ago it was okay for me to start out as a sole proprietor. At this stage in my life, when I have personal assets to protect, that’s no longer a sensible option,” says the 46-year-old Corona, California, contractor.

Whether they are running a small side business, investing in real estate , or are established professional service or trade professionals like Edmonds, go-it-alone, self-employed individuals typically start out as sole proprietors because it’s easy and relatively uncomplicated. Under a sole proprietorship — or general partnership if there is more than one owner –a business can get started simply by hanging out a shingle.

By contrast, while separate business entities such as limited liability companies or Subchapter S Corporations can shield personal assets and offer potential tax benefits , they also come with more paperwork and cost. Edmonds paid nearly $3,000 to have a legal professional set up his corporation and file the appropriate paperwork with the state, and will need to pay state annual fees as well. His accounting costs are also likely to be higher. “The peace of mind is well worth it,” he says.

Not everyone needs to form a separate business entity, says Johanna Sweaney Salt, a certified public accountant and partner at Kaufman Schmid Gray & Salt in Claremont, California. “There isn’t a lot of trouble a portrait photographer can get into, and there is always professional liability or umbrella coverage as a backup,” says Sweaney Salt, who nonetheless cautions that people should consult an attorney on such issues. “A lot of business owners complicate things when they really don’t have to.”

Others believe that those who don’t cordon off business and personal assets face a potential legal minefield, even for seemingly low-risk businesses.

“Let’s say you’re a sole proprietor owner of a printing shop who sends an employee out to get some office supplies,” says Phoenix, Arizona attorney Richard Keyt, whose firm sets up an average of over 450 businesses a year, most of them LLCs. “If that employee runs a red light and hits someone, your personal assets could be used to satisfy any legal judgment.

s corporation taxes Is there an IRS penalty for not paying ...

A penalty is possible if more than $ 500 taxes are owed. If the taxable income occurs unevenly throughout the year, you can annualize the payments and avoid the penalty. The penalty is figured using Form 2220.

Complete details are in the Instructions to IRS Form 2220 Underpayment of Estimated Tax by Corporations.

http://www.irs.gov/pub/irs-pdf/i2220.pdf

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truck insurance If you file a truck insurance claim and stop paying the premiums, is the claim still valid?

Larry I filed a commercial insurance claim on my truck that was stolen. The claim is still being processed after 6 weeks. I paid the policy until the end of month and stop paying it. Is the claim still valid, if I stop paying the premiums for it? They offered me a settlement about 2 weeks ago and I did not accept it. They ...

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StephenWeinstein Blue Cross charges my health insurance premium to my credit card each month automatically. I do not sign a separate credit card authorization each month and I do not get a receipt. Will the credit card statements be enough for tax purposes, or do I need to request an actual receipt from the insurance company? Answer by tmaYes. You wouldn't need to show proof ...

Late filing of return. A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. If the corporation is charged a penalty for late payment of tax (discussed next) for the same period of time, the penalty for late filing is reduced by the amount of the penalty for late payment. The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $ 100. The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. A corporation that has a reasonable cause to file late must attach a statement to its tax return explaining the reasonable cause.

Federal Taxation: Comprehensive Topics 2009

Raising capital, private placement forms & techniques

S Corporation Answer Book, Seventh Edition

Law for Business and Personal Use

S Corporation Taxation 2009