FAQ
Where do I need to register my company?
Whether or not you need to register your company depends on its location and its structure. If your business is structured as a C Corporation, a partnership or an LLC, you will likely need to register with the state in which you are headquartered, via the state’s Secretary of State’s office, a Business Bureau or a Business Agency. Paperwork requirements vary by state, so check with the applicable office.
In many states, sole proprietorships can simply do business as an individual. Some, however, do require registration; check with the offices above to see the requirements in your state.
How do I file taxes based on my entity structure?
The form you file at tax time depends on your entity structure. Briefly, sole proprietorships file a personal income tax return with Schedule C, showing their profit and loss. C Corp’s file a business income tax form, 1120, while any shareholders file dividend income on their personal tax returns. S Corp’s file form 1120S, while any shareholders pay income tax on passed through income, reported on Form K-1.
If you are in a partnership or a multi-member LLC, the partnership files Form 1065. You pay income tax on passed through income, reported on Form K-1. If you are in a sole member LLC, you file an individual 1040 and Schedule C.
What expenses are deductible and non-deductible?
What is the difference between book and tax accounting?
What kind of taxes do I file for my business?
How do I file my taxes for my business?
How does using Rollovers for Business Startups (ROBS) affect filing taxes?
If you use ROBS, you must establish your business as a C Corp. That means your business must file and pay business taxes as a C Corp. In addition, you must pay taxes on your salary and any dividend or stock income from the C Corp. ROBS involves withdrawing tax-advantaged funds from retirement plans, such as a traditional 401(k), but the ROBS method protects those withdrawals from the taxation they would be subject to without ROBS.
In addition, your business will have to file Form 5500, Annual Returns/Reports of Employee Benefit Plan, with the IRS every year, as part of the annual reporting requirements for the retirement fund you created for the C Corp in the course of setting up ROBS.
How do I exit my Rollovers for Business Startups (ROBS) plan?
These are two ROBS exit strategies. One is known as “a buyback termination,” In it, you buy back the company stock you used ROBS to purchase. The goals of a buyback termination are usually to 1) get these funds back, 2) switch to a more tax-advantaged business structure or 3) sell a portion or all the business, or a combination of the three.
The second is known as an “insolvency termination.” As the term suggests, this occurs if your business becomes insolvent.
Both exit strategies are complicated because of government requirements, and failure to do them properly can cause fines, penalties and even legal action. Briefly, you’ll need to involve your ROBS plan administrator. Then, the steps are:
- Value the stock.
- Complete all buyback and plan termination requirements.
- Finalize the stock buyback.
- Complete the year-end documentation.
- Close the retirement plan started under ROBS and file the last Form 5500.
What are the "tax credits" that C-Corps have that other entities don't?
Note that “tax credits” is a specific term applying to credits usually offered for specific activities deemed beneficial by tax authorities. IRS-designated tax credits are usually available by activity, not available by business entity type.
However, C Corporations can reap a number of tax benefits that other business entity types don’t.
First, C Corp’s can deduct their share of payroll taxes from their corporate taxable income. Second, if you pay your employees bonuses, you can also deduct the amount of the bonuses. Third, bonuses can be used as a tax strategy. You can use the amount of bonuses to reduce your taxable income in a given year, as long as the amounts are reasonable.
Fourth, your company’s share of health insurance premiums and other allowable employee benefits are deductible. Fifth, C Corp’s are the only type of business, effectively, that can use the allowable 10 percent corporate charity deduction, because all other entity types use the individual charity deduction, either their pass-throughs or through earning individual income. Finally, if a C Corp suffers income losses in a given year, they can carry the losses forward to offset gains over several years.
What is the requirement for selling a C Corporation within a specific time frame to qualify for tax exemption on gains?
What are the taxation pros and cons for holding real estate in a C Corp?
Holding real estate in a C Corp is largely inadvisable because of the double taxation a C Corp is subject to. If a property is sold the gain is taxed once at the corporate level, and then again when the proceeds are distributed to the shareholder. If the corporation transfers the property directly to its owners, the owners will treat the property received as a dividend (potentially subject to the net investment income tax) and the corporation will have to pay tax on the gain (the fair market value of the building less the corporation’s basis).
Are there any potential positives? Yes. Should the C Corp default on the real estate loan, there may be liability protections for the owners, assuming the owners did not guarantee the loan. Additionally, if you lack the capital personally to purchase a building, buying a building with a C Corp provides you with options.
Pre-Qualify Today!
