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    7 Replies Latest reply on Aug 25, 2008 10:31 AM by Bridge

    New S-Corp, Pl. advise

    FreeM96 Wayfarer
      Hi All,
      I am getting ready to form my new S-Corp. A bit of background - So far I have worked mostly as FT employee and contracted as a W2 employee. Minimal accounting/tax knowledge (but smart enough to sharpen our pencils if/when needed), we have a cpa who does our taxes. Here are some major confusion areas for me, pl. help:

      1. I am the only employee and founder of this Inc. I could put my hubby on it though he may not have any projects to work on (different work areas though both in technology). Any advantages to adding him as co-founder?

      2. I don't have projects lined up right away , but I am hoping mainly to get corp-to-corp projects after forming the Inc. My question:
      At what point should I set up payroll? How can i pay myself if my company is not making any money? I am planning to use Bofa's online payroll (any other recommendations welcome) to pay myself as an employee at that point, I am also the founder/CEO of the company. Can/Should I pay myself as the CEO and as the employee?
      How does the payroll thing work in between projects? Can I be salaried and not pay myself regularly?

      If someone can throw some light on the subject, I'd greatly appreciate it.
      Much anxiety,
        • Re: New S-Corp, Pl. advise
          LUCKIEST Guide
          WHY TWO POSTS???????
          • Re: New S-Corp, Pl. advise
            CoachMike Wayfarer
            I'll answer your questions in order.

            1. Really no advantage to adding him as a co-founder. Since you are married the income or loss passes through to your joint return via a Schedule K-1 which comes from the Corporate Tax Return.

            2. I would worry about payroll when more money is coming in than is going out in expenses. It does not make sense to pay yourself a salary and pay the taxes on it if you have to lend the corporation the money to pay your salary. In effect you are taking money out of your left pocket and putting it in your right pocket, but less as Uncle Sam takes him bite. I would not take a salary until you are making a profit.

            3. To answer your salary questions. Yes you can pay yourself as the CEO and as an employee. It would all end up on the same W-2. So it is just more of an accounting decision.

            This brings me to your record keeping. (shameless plug) I would seriously consider getting QuickBooks software to run your business. I would also buy computer checks to simplify your work. As you write the check and print it in QuickBooks you are also posting your accounting records. A good set up of QuickBooks will give you the management information you need to run your business and when you visit your CPA he will not have to bill you for keeping track of your bookkeeping but will be able to do what he or she was trained to do, help you interpret the numbers your accounting system is giving you.

            I hope this helps,

            Mike Crosa QuickBooks Coach
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              • Re: New S-Corp, Pl. advise
                FreeM96 Wayfarer
                Double posts, my mistake. My first post, thought I had posted in the wrong forum and in haste thought I had to post to the other forum as well. Later realized they all show up in Forums main pg anyway.. Oops...sorry folks. (Tried looking for a delete right after, couldn't find it!)

                Thanks much for your prompt reply. Will definitely keep Quickbooks in mind.
                If you can, pl. also explain if I can start off not paying myself (no projects), then paying myself as a salaried employee (while on projects) and the going back to not being paid (in between projects). Am I still a salaried employee, is there a different way I need to classify myself?

                I am presently comparing
                Intuit's MyCorporation (they also offer some basic quickbooks s/w in one of their pkgs, I think)
                LegalZoom, and
                to see who offers the most comprehensive service for the best price.


                Any IT consultants willing to share their 'path to S-corp' experience and words of wisdom?
                  • Re: New S-Corp, Pl. advise
                    CoachMike Wayfarer
                    They probably are giving away Simple Start in their package not sure. If it were me I would go with QuickBooks Pro. You can get it at my website with my discount.

                    I thought you had incorporated already. If you haven't then you might consider forming an LLC. As the sole shareholder you could elect to file as a sole proprietor and save yourself the preparation fees in preparing a corporate tax return. It would just be part of your regular 1040. If that is the case then you can avoid having to pay payroll taxes altogether as any money you took would be a draw. So in your search for entity check out the LLC.

                    If you still want to be a corporation then yes you can pay yourself when there is work and stop when there is not.

                    I would be remiss if I did not say that you should sit down with your CPA and discuss these things. It's like the old saying of keeping your oil changed on a regular basis versus replacing the engine. A little up front expenditure will save you a lot in the future.

                    Mike Crosa
                • Re: New S-Corp, Pl. advise
                  KayFinancial Newbie

                  Greeting FreeM96,

                  The advise from CoachMike is good, however I would like to give you a little different view on some of the questions.

                  One option on the pay, is to pay yourself on commission, so you only pay yourself when you have received funds from a client. An other factor that needs to be looked at is what your projected income is and current and future tax consequences. It sounds like you are considering paying yourself before you have the income from the business to do so. If you have the money to fund the company, including paying yourself, and you are currently in a lower tax bracket, but expect your company to have considerably more income in the next few years, then you may want to go ahead and pay yourself your salary now, and pay the lower tax rate now, then later when you are raking in the big bucks, pay yourself back the money that you loaned it to get the company started, which would then normally be taxed at a higher rate. This is considered a repayment of your own money, and will not be taxed. One note is you should draw up an agreement between yourself and your company, so that your company pays you interest on the money that you loaned it. You can claim this as an expense for your company, but you must also declare this as interest income on your personal return, which is basically a wash, but if you ever get audited, it will help avoid problems in the audit, as to if it was really a loan or not, and thus when you pay yourself back, will not be a problem.

                  You also stated that you have not incorporated yet. Most states have a process where you can set up your own corporation or LLC on line, without the use of LegalZoom or similar operations. The fees LegalZoom charge are in addition to the state filing fees, which vary between states. In FL you can go to and file it yourself, provided you are a FL resident. If you want to incorporate in a state other then which you live, then you need a company like LegalZoom to help you.

                  I agree with Mike that QuickBooks Pro or Premier is a good program to start with, but if your needs initially are minimal and simple, then the SimpleStart is good to get started with (plus it is free), and you can always upgrade to Pro or Premier when the need arises, and still use the same file that you set-up in SimpleStart. I belong to a group that meets once a month to discuss QuickBooks, and has members from novice to expert, some are accountants, others are business owners, and some are bookkeeping staff at various companies. We are in the Fort Lauderdale area, but have recently start to let people join us thru a web link.

                  The idea of the LLC to start is excellent, plus if you start to grow, you can always file an election with the IRS to be treated as a corporation and when making the election, make sure you make it an election to be treated as an "S" corp. This is an oversight I often see when someone incorporates. You must file an election with the IRS to be treated as an "S" corp, otherwise you are treated as a "C" corporation, which could end up with your income being taxed twice, and that is not a good thing for you.

                  I hope I have given you some good information to consider. Please feel free to contact me if you need additional information.

                  Ken Kay

                  Enrolled Agent

                  Kay Financial Services LLC
                    • Re: New S-Corp, Pl. advise
                      Bridge Navigator
                      I believe the IRS imposes a time limit for a company to file 8832/2553 forms (Entity election/ S corp election). You must make the entity election on or before the due date of the first tederal tax return. There are some exceptions but you are better off making the election sooner rather than later.

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