| Before you start a business, be sure to do your | | | | the liability protection that is available (and not available) |
| homework. Hire a professional to help you through the | | | | by forming an LLC taxed as an S corporation vs. just |
| process, review the advantages and disadvantages of | | | | an S corporation. |
| each type of business, and establish business lines of | | | | Taxable gains are reduced. If you should ever decide |
| credit so that you can have sufficient capitalization for | | | | to sell the business, you may pay less on taxable gains |
| your venture. | | | | than you would with a corporation. |
| The first step is to take off your do-it-yourself hat. If | | | | Once you've hired a consultant and have decided to |
| you want to be successful in business, it's important to | | | | move forward, you'll have to file Form 2553 with the |
| surround yourself with others who can guide you | | | | IRS to get started (keep in mind you may have to file |
| through the process and avoid costly mistakes. That's | | | | a similar form at the state level also). Here are some |
| why you'll want to hire a professional to take care of | | | | of the requirements: |
| matters that you're not familiar with. Before you file the | | | | You cannot have more than 100 shareholders. If a |
| paperwork, hire a professional business adviser who | | | | husband and wife jointly form an S Corporation, they |
| can walk you through the process and will be available | | | | are considered as one shareholder. Certain trusts, |
| to help you in the early stages of your business. Ideally, | | | | estates, and individuals qualify as shareholders in the S |
| the company you seek does more than just form the | | | | Corporation structure, as long as they are American |
| S corporation. As you know, 80-95% of business | | | | citizens. This is a problem if you are looking to have |
| owners fail within 5 years. The key is for that | | | | investors and you later realize that an investor may |
| company to provide you resources to help grow your | | | | not invest into your S corporation as a Corporation, |
| business to the next level! | | | | LLC taxed as a partnership or foreigner. |
| There are several advantages to forming an S | | | | All shareholders agree to the S Corporation structure. |
| Corporation. Here are just a few. Check with a | | | | Presumably you'll all be in agreement but if you're not, |
| professional business consultant for a full list of | | | | you cannot form an S Corporation entity. |
| advantages: | | | | You must form your domestic company within the |
| You won't pay corporate taxes. This means that you | | | | United States. Please check with individual states |
| won't have to pay the double taxation penalty that | | | | because laws vary regarding business requirements. |
| corporations must pay. This means huge tax savings | | | | Once you've filed the paperwork, be sure to plan |
| for the owner(s) because it passes through your | | | | ahead and establish business lines of credit. Credit is |
| personal income taxes. However, you're expected to | | | | awarded according to the cash you have on hand, not |
| pay yourself a reasonable salary by industry | | | | your need for it. Stop using your personal credit cards |
| standards. Your salary is taxed at 15.3%, the same | | | | and pay down the balances. The more responsible |
| amount as self-employment tax. The IRS keeps an | | | | you are personally, the more likely you'll be able to |
| eye on businesses that pay unreasonably low salaries | | | | establish credit for your business. |
| in order to avoid taxes, so be realistic when you | | | | Starting an S Corporation does not have to be a |
| determine your salary to avoid the IRS red flag. | | | | headache. Consult with a professional so you'll avoid |
| You'll have heightened liability protection. While you | | | | the costly mistakes that come with inexperience. Then |
| won't be protected for everything, for the most part, | | | | you can focus on taking your business straight to the |
| you personal property is protected when you're dealing | | | | top of your market. |
| with creditors, liens, and lawsuits. Become familiar with | | | | |