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If you’re a household business, which means that you earn most of your income from one or more members of your immediate family and/or your spouse, then incorporating as an S-corporation might be the best way for you to file your taxes. You can do this if:
You want to protect yourself from personal liability lawsuits by having limited liability protection for shareholders or owners of the corporation.
If you’re a single-member LLC, the process of forming an S-corp is fairly simple: you just have to create an LLC and then file your articles of incorporation with the state. If you have multiple members, however, it gets more complicated. If your LLC has more than one member and you want to incorporate it as an S-corp, then all members must sign off on filing for incorporation in their state or another state.
Once you have formed an S-corporation with the IRS, you will receive a confirmation letter. This letter is proof of your incorporation and it will serve as your business tax identification number. It is not permanent. The S-corp status must be renewed every year by filing a new Form 2553 with the IRS.
An EIN is a federal identification number that companies use to pay taxes and open bank accounts. It’s also used when registering with state agencies, hiring employees and other business activities.
To get an EIN, complete Form SS-4EF and submit it by mail or fax to the IRS. The form can be found on the IRS website under Publication 33420.
A bylaws document is a set of rules that govern the internal affairs of your corporation. It’s also known as a corporate constitution or charter. These rules should include:
When you create an S Corporation Bylaws document, it helps ensure that these policies remain consistent from year-to-year without having to amend any state filings every time something changes.
A corporate record book includes:
Your company’s Board of Directors is the governing body responsible for setting corporate policy, hiring and firing employees, appointing officers and setting their compensation. The board must have at least three directors, who can be natural persons or entities that are considered separate from the business. Your board members can be either:
If you do not wish to hold an election for directors when starting your corporation then you may appoint up to two individuals as designated initial directors until such time as elections take place.
As a shareholder, you are not liable for the debts of the corporation. However, as an owner of stock in a corporation and not an employee of that corporation, you will have no right to direct how it operates or what type of work is done.
As a shareholder, you have a right to vote on corporate matters such as who should be appointed as officers (such as president and secretary) and directors.
State law requires corporations to adopt certain corporate resolutions and policies. Corporate resolutions are the formal way for a corporation to make decisions, while corporate policies are the rules that govern how a corporation will operate.
This process is handled by your CPA or accountant, but you should understand what happens so you can account for it in your bookkeeping.
When you’re running a business as an S-corporation, the IRS requires that you file Form 1120S (U.S. Income Tax Return for an S Corporation) and pay self-employment tax on a quarterly basis throughout the year.
If you’re interested in becoming an S-corporation for your household, you’ll have to go through a lot of steps before it can happen. As with any new business venture or project, you’ll have to do some paperwork, open a bank account and file taxes.
You’ll also need to maintain corporate property and records as well as bylaws for the corporation.
All you need is the right information and some patience.
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Register Your Trademark with USPTO Today & Get Serial No. in 24 Hours