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Linkedinincorporation Linkedinincorporation Presentation Transcript

  • To Incorporate or Not to Incorporate NY State By: Ragini Subramanian Enrolled Agent/ Master Tax Advisor Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited.
  • AGENDA Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 2The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Decision Matrix Business objectives and typical business entities in your industry 3 2 1 Available Entity ChoicesCosts to incorporate, Tax Burden/Savings, andCompliance Requirements Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 3 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • And Then Some MoreCommon Mistakes Before and AfterIncorporationWhy Incorporate?What Happens After Incorporation?Useful Weblinks Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 4 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • CHOICE OF ENTITY Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 5The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Entity ChoicesUnder NY State Business Incorporation Laws Under Internal Revenue Code Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 6 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Entity Choices NY State Internal Revenue CodeBusiness Corporation Laws Sole proprietorship or Sole proprietorship or D/B/A D/B/A Limited Liability Partnership Company (LLC) “C” Corporation Partnership – GP, LLP “S” Corporation General Business Corporation (Inc.) Professional Services Corporation (PC) Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 7 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • A Brief Entity DescriptionSole proprietor• Owner of an unincorporated business by himself or herself• Not a separate legal entity• Principal features are –centralization of management, lack of perpetual duration/existence, owner personally liable for all actions related to business activity Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 8 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • A Brief Entity Description“C” Corporation• An organization incorporated under the general business incorporation statues of NY State• Prospective shareholders exchange money, property, or both, for the corporation’s stock• Taxed as a “C” corporation unless elects to be taxed as an “S” corporation• It is a legal entity separate from the individual/s who compose the business• Principal features are – perpetual duration, limited liability for owners, may afford easy transferability of interest, possibly centralization of management Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 9 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • A Brief Entity Description“S” Corporation• An organization incorporated under the general business incorporation statues of NY State• Prospective shareholders exchange money, property, or both, for the corporation’s stock• Elects UNDER IRC to pass corporate income, losses, deductions and credit through to their shareholders that is elects to be taxed as a “S” corporation Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 10 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • A Brief Entity DescriptionProfessional Services Corporation• Incorporated under section 1503 of the NY State Business Corporation Laws (as opposed to section 301 of the NY State General Business Corporation statutes) (can choose to be incorporated under NY State LLC statute instead)• Examples of Professions – attorney, accountant, architect, nurses, chiropractors, etc• Is automatically treated as a “C” Corporation BUT CAN specifically elect to be taxed as an “S” corporation• It is a legal entity separate from the individual/s who compose the business• Principal features are – perpetual duration, limited liability for owners, may afford easy transferability of interest, possibly centralization of management Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 11 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • A Brief Entity DescriptionPartnership• Relationship between two or more persons who join to carry on a trade or business. Each partner contributes money, property, labor or skill, and expects to share in the profits and losses of the business. No written agreement is required.• Is taxed as a Partnership, that is, a pass thru entity under federal and NY tax laws BUT CAN specifically elect to be taxed as a “C” or a “S” Corporation• Principal features are – generally owners do not have limited liability unless LLP partner, limitations on transferability of interest, limitation on centralization of management Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 12 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • A Brief Entity DescriptionLimited Liability Company• An unincorporated business organization (other than a partnership or trust) with one or more members, each having limited liability for the contractual and other liabilities of the company, formed under the NY State Limited Liability Laws• A single member LLC is taxed as sole proprietor unless it elects to be taxed as a “C or “S” corporation• A multi member LLC can elect to be taxed as corporation – “C” or “S”, or partnership• Principal features include – limited liability for owners, limitations on transferability of interest, limitation on centralization of management Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 13 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Entity Choices Partnership Partnership “C” corporation “S” corporationMULTI-OWNER “C” corporation Corporation “S” corporation Partnership LLC “C” corporation “S” corporation “C” corporation LLC “S” corporationSINGLE-OWNER Sole Proprietor “C” corporation Corporation “S” corporation Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 14 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • INCORPORATION COSTS, TAX BURDEN/SAVINGS, AND COMPLIANCE Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 15The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Costs and Compliance - NY StateCosts and Sole Partnership Limited Liability CorporationCompliance Proprietorship CompanyFiling File copy of File copy of File copy of Articles File copy ofrequirements certificate of certificate of doing of Organization with Certificate of doing business business as NY State Incorporation with as sole partnership with the Department of NY State proprietor with county State, Division of Department of the county Corporation State, Division of For PLLC further Incorporation requirements related to education, may apply Publish notice related to LLC formation or publication of articles of organization in two newspapers in county of business Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 16$25 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Costs and Compliance - NY StateCosts and Sole Partnership Limited Liability CorporationCompliance Proprietorship CompanyFees $25 to obtain $5 for each name $5 for each name $5 for each name certified copy of search search search D/B/A certificate $20 for name $20 for name $20 for name reservation reservation reservation $25 to obtain $200 for Articles of $125 for certified copy of Organization, Certificate of certificate of doing $50 to obtain Incorporation business as affidavits of $10 for issuance partnership publication of maximum 200 shares no par value or par value of up to $20,000. Addl. Shares 5 cents per share no par value and 1/20 of 1% for shares with stated par value.Total $25 $50 $450 $235 Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 17$25 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Components of Taxes COMPONENTS OF TAXES ON BUSINESS INCOME Income Tax Filing Fees, Self-employment, Sales Tax, Employment Tax MCTMTFederal NY (Franchise Tax) FICA and UI-Federal NY FUTA and NY Employer & Employer Employee Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 18 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Business Tax Returns A SnapshotAttributes Sole Proprietor Partnership or “S” Corp. or an LLC “C” Corp or an LLC or Multi-Owner LLC electing to be a “S” electing to be a Single member Corp taxed as a “C” Corp LLC (SMLLC)Number of One each for Two each for Two each for federal Two each forIncome/ federal and NY federal and NY and NY federal and NYFranchise Tax returns Partnership returns Corporate returns Corporate returnTax returns need not be must be filed if it must be filed must be filed filed if income has income, gain, whether or not there whether or not it is below deductions or is income has income threshold credits Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Business Tax Returns A SnapshotAttributes Sole Proprietor or Partnership or “S” Corp. or an “C” Corp or an LLC Single member LLC Multi-Owner LLC LLC electing to electing to be a (SMLLC) be a “S” Corp taxed as a “C” CorpFederal Form 1040 together Form 1065- Filed by Form 1120S- Filed Form 1120- Filed byIncome Tax with Schedule C the Partnership but no by “S” Corp. but no Corporation to report andForms (business income tax or self income tax is pay income tax on its net income/expense) and employment tax is payable by the income. A “C” Corp, Schedule SE (self payable by the corporation. It unlike partnership and employment taxes) partnership. It passes passes all items of “S” corp., is not a pass all items of income, income, loss, thru entity loss, expenses to the expenses to Form 1040 –Corporation partners by providing shareholders by owner files his/her tax them with Form K-1 providing them with return to pay taxes on Form 1040 –After Form K-1 income from all other receiving K-1 from Form 1040 –After sources. partnership, partner files receiving K-1 from Unlike in the case of a his/her own income tax the corporation, Partnership and “S” return reflecting items shareholder files corporation, the from K-1 and income his/her own income corporate return does not from all other sources tax return reflecting impact the personal together with Schedule items from K-1 and return SE (self employment tax income from all other on income and sources guaranteed payments shown on K-1) Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 20 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Business Tax Returns A SnapshotAttributes Sole Proprietor Partnership or “S” Corp. or an LLC “C” Corp or an LLC or Multi-Owner LLC electing to be a “S” electing to be a Single member Corp taxed as a “C” Corp LLC (SMLLC)NY State IT-201 to pay IT-204 to pay NY CT-3S to pay NY CT-3 or CT-4 toTax Forms income tax franchise tax franchise tax pay franchise tax IT-201 individual IT-201 individual tax IT-201 individual tax return return tax returnFiling April 15th Forms 1065 and Forms 1120S and Forms 1120 andDeadlines IT-204 – April 15th CT-3S – March 15th CT-3/ CT-4 - March Forms 1040 and Forms 1040 and 15th IT-201 – April 15th IT-201 – April 15th Forms 1040 and IT-201– April 15th Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 21 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Business Tax Returns A SnapshotAttributes Sole Partnership or “S” Corp. or an LLC “C” Corp or an LLC Proprietor or Multi-Owner LLC electing to be a “S” electing to be a Single Corp taxed as a “C” Corp member LLCEmployment None unless Partnership - None Employee EmployeeTaxes and employees unless employee shareholder must be shareholder must bePayroll Note that self Partner none. Note paid salary by the paid salary by theReporting employment however that partner corporation. As such corporation. As such taxes are paid pays self corporation pays its corporation pays its on Schedule employment taxes share of FICA, FUTA, share of FICA, SE along with on Schedule SE UI, withholds FUTA, UI, withholds Form 1040 along with Form employee share of employee share of 1040 FICA, FUTA. FICA, FUTA. Note: Sole Corporation also files, Corporation also files proprietor Note: Partnership reports, pays/deposits reports, pays/ never issues a never issues W-2 or these taxes deposits these taxes W-2 or 1099 to 1099 to partners quarterly/annually on quarterly/annually on himself/herself Forms 940, 941/944, Forms 940, 941/944, NYS-45, W-4 and NYS-45, W-4 and issues W-2 to issues W-2 to shareholder shareholder employee employee Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 22 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Business Tax Returns A SnapshotAttributes Sole Proprietor Partnership or “S” Corp. or an LLC “C” Corp or an LLC or Multi-Owner LLC electing to be a “S” electing to be a Single member Corp taxed as a “C” Corp LLC (SMLLC)Estimated Yes quarterly Partnership/LLC – “S” Corporation – “C” Corporation –Taxes no No Yes quarterly Partner/LLC Shareholder – Yes Shareholder - No member – yes quarterly quarterlySales Tax Yes if Yes if applicable Yes if applicable Yes if applicable applicable Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 23 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Business Tax Returns A SnapshotAttributes Sole Proprietor Partnership or “S” Corp. or an LLC “C” Corp or an LLC or Multi-Owner LLC electing to be a “S” electing to be a Single member Corp taxed as a “C” Corp LLC (SMLLC)MCTMT No, unless net Yes, partnership Yes, “S” Corporation Yes, “C” Corporation earnings from provided it has provided it has provided it has self-employment employees and has employees and has employees and has attributable to payroll expense in payroll expense in payroll expense in MCTD exceed excess of $312,500 excess of $312,500 in excess of $312,500 $50,000 for the in any calendar any calendar quarter in any calendar tax year quarter quarterOther Sole proprietor – Partnership and LLC No NoTaxes or no – Yes must file FormFiling Fees SMLLC – Yes IT-204-LL by must file Form January 30th and pay IT-204-LL by fixed dollar annual January 30th fee of $25 and pay fixed dollar annual fee of $25 Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 24 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • * Assumes single individual, no dependents and only business income. In each individualcase, tax impact will vary and will depend on marginal tax rate, corporate rate, othertaxable income, filing status, etc. Potential Tax Impact* Single Member “S” “C” Partnership LLC or Sole Corporation Corporation (50% owner) Proprietorship(1) Gross Income From Business $100,000 $100,000 $100,000 $100,000(2) Business Expenses $40,000 $40,000 $40,000 $40,000(3) Salary to Owners by Business Entity N/A $25,000 $25,000 N/A(4) Less: SE tax deductible by Owner on Form 1040 $3,685 N/A N/A $3,685(5) Less: SE tax on owner employee salary N/A $1,663 $!,663 N/A deductible by Business Entity on 1120 or 1120S(6) Taxable Income on Form 1040 after standard $46,815 $48,838 $25,000 $46,815 deduction ($5,800), and personal exemption ($3,700)(7) Net Income on Business Tax Return 1120S or N/A $33,338 Not $33,338 $93,630 Not 1120 or 1065 taxable to taxable to Pship corp.(8) Income Tax Payable by Owner/ Member/ $7,831 $8,331 $1,904 $7,831 shareholder on Form 1040 on line (6) above(9) Income Tax Payable by Business Entity on line N/A $0 $5001 $0 (7) above(10) SE Tax Payable by owner/partner/employee $7,370 $1,663 $1,663 $7,370 shareholder(11) Total Tax Liability (8)+ (9)+ (10) $15,201 $9,994 $8,567 $15,201 Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 25 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Potential Tax ImpactTax impact analysis varies among taxpayers anddepend on many factors,• Income from other sources including that of spouse• Filing status• Number of dependents• Objectives for the businessA careful analysis is required in each individualcaseAnd we can help you do that Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 26 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Other Compliance RequirementsFour prong test of IRC• Continuity of life• Limited liability• Centralization of management• Free transferability of interestMust file election to be taxed as• “S” or “C” Corporation or PartnershipMust obtain EIN# from IRS Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 27 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • OBJECTIVES AND PRACTICES Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 28The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Objectives and Industry PracticeNumber and types of ownersCommitment to businessOwner’s marginal tax rateGrowth and income potentialTolerance to adhere to continuous compliancerequirementsType of business and industry practiceIRS four prong entity test Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 29 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Common Errors Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 30The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Common Errors Upon IncorporationNo entity election madeEntity election made with feds but not with StateWrong entity electionFails to keep records of entity electionNot obtaining EIN#Professional services company incorporated asgeneral business corporationDoes not meet the parameters of the IRC fourprong entity test Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 31 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Common Errors After IncorporationNot filing tax returnNot filing correct tax returnCompliance with feds but not with NY and viceversaForget to notify changes in businessOwner continues to represent herself/himself assole ownerFail to meet the four prong entity test of IRCFiles wrong return or does not complete all sectionsof the returnNo minutes of meetings or corporate minutesmaintained Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 32 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Common Errors After IncorporationLack of separation of business from individualaccountsEmployee owner/shareholder does not drawcompensation from the corporationSole proprietor pays salary via W-2 toherself/himselfPartnership issues Form 1099 to partnersPartner draws salary via W-2 from partnershipForm 1099 not issued to independent contractorsNotice from IRS and NY DOR ignored Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 33 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Common Errors After IncorporationNo one person or default person assigned to takecare of tax and compliance responsibilityFails to maintain basis – “S” Corp. and PartnershipFails to maintain correct tax year• “S” corporation – calendar year• C” corporation other than Personal Services corporation can maintain fiscal year• Sole proprietor – use tax year of the owner• :Partnership – must use tax year of majority partner• LLC – must use fiscal year of majority interest member Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 34 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Why Incorporate? Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 35The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Why Incorporate?Shield personal assets from businessliabilitiesHave “business status” for what youdoSave on taxesPotentially provide for estate planning Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 36 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Incorporated, Now What Happens? Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 37The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • What Happens After Incorporation?Pay estimated taxesComply with payroll reportingConduct organizational meetingMaintain accurate business recordsMaintain corporate recordsRespond to notices from IRS and NY State DORComply with NY State employment lawsEnsure permits and licenses are up-to-dateFile biennial/five year statement and pay fees Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 38 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • IRS Audit Rates/StatisticsBy Tax Filing Type FY 2011 Returns Filed (Prior Calendar Returns Audited Percentage Audited Year) Small Corporation 1,931,008 19,697 1.02% Large Corporation 59,291 10,459 17.64% Subchapter S 4,444,154 18,519 0.42% Partnership 3,434,905 13,770 0.40% Individual 140,837,499 1,564,690 1.11% Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • IRS Audit Rates/StatisticsBy Income Level for Individuals (2009) Percentage of Total Returns Percentage of Returns Audited Filed No adjusted gross income 2.13% 2.15% $1 - $24,999 40.51% 0.90% $25,000-$49,999 24.31% 0.72% $50,000-$74,999 13.44% 0.69% $75,000-$99,999 7.99% 0.69% $100,000-$199,999 8.69% 0.98% $200,000-$499,999 2.25% 1.92% $500,000-$999,999 0.43% 2.98% $1,000,000-$4,999,999 0.23% 4.02% $5,000,000-$9,999,999 0.02% 6.47% $10,000,000+ 0.01% 9.77% Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.
  • Useful WeblinksFederal• www.irs.govNY• www.dos.ny.gov• www.tax.ny.govSmall business administration• www.sba.govH & R Block Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 41 The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.