mdk wrote:

- quote -

Let me add my voice to the others who have suggested that
your friend consult a qualified tax adviser before taking
any action to form a corporation. Another form of business
entity may be more suitable for his purposes, and S
corporations in particular are quite complex. In any case,
he will need professional help to decide what form of
business entity to use and how to handle the legal and tax
aspects of it. It is not a do-it-yourself project, despite
other suggestions to the contrary.

Katie in San Diego

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Business wrote:
- quote -

My two cents: you don't need an accountant if you're
willing to spend the time learning double entry accounting
and buying a decent accounting program (like Peachtree).

You can do creative things with an S-corp, but the bottom
line is that you pay taxes every year on whatever profits
you make.

But, once you 'retain earnings' (after you've paid taxes)
your money can 'build up' in the S-corp bank account. These
monies can be used for S-corp expenses. But don't make the
mistake of paying taxes twice of course. That's why you
need a decent accouting program: so you know what is profit
and what is expense and what is 'retained earnings' (the
last item is basically money, for S-corp purposes, that has
already had tax paid on it, since S-corps, unlike C-corps,
don't defer taxes on retained earnings).

Another thing to do: pay out dividends instead of wages (I
do that once in a while). But you cannot pay an 'excessive'
dividend (IRS has ruled). It's complicated, don't ask me to
explain it here; do your own due diligence.

Good luck.

RL

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"mdk" <mdk332000[at]yahoo.com> wrote:

- quote -

It is best to open up a bank account in the S-corporation's
name and deposit all income into that account. Since a
S-corp is a pass-through entity, the corporation pays NO
federal income tax. All corporate income will flow through
to the shareholders. If he takes a salary (recommended if
he works in the corporation), he will be paying taxes
through withholding. If he draws a dividend, this has no
effect tax-wise other than reducing his basis in the
corporation.

Wayne Rivers, CPA

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mdk wrote:

- quote -

S-corporations, as a general rule, don't pay the corporate
income tax; further, s-corporation shareholders generally
pay individual income tax on their share of the
s-corporation's income, whether or not it's actually
distributed to them. Your friend should sit down with his
friendly local CPA and learn about s-corporations and how
they're taxed before he goes and creates one.

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mdk wrote:

- quote -

Too much to explain here, so perhaps you'd better get some
local help from a local tax profession, either a Certified
Public Accountant (CPA) or an Enrolled Agent (EA).

He will be able to better explain that you
(1) must open a corporate bank account
2. the S corporation will pay no income tax,
3. you will have to take a suitable salary on which
4. you will have taxes withheld and then
5. On your own 1040 you will include the w2 income and
the corporate income (after your salary of course)

ChEAr$,
Harlan Lunsford, EA n LA

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mdk <mdk332000[at]yahoo.com> wrote:

- quote -

It doesn't matter.

- quote -

For tax purposes, the S corp. is ignored.

- quote -

It doesn't.

- quote -

No, he pays income tax when the S corp. gets income from its
clients/customers.

Seth

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"mdk" <mdk332000[at]yahoo.com> wrote

- quote -

The "S" corporation doesn't pay taxes on the profits. The
shareholder does though, regardless of the amount taken out.

Of course, salary payments made to the shareholder are
subject to withholding taxes (as with any other employee)
and get paid in on whatever schedule applies (quarterly,
monthly, semi-weekly, etc).

Of course, if there are significant "S" profits the
shareholder may want to consider making quarterly estimated
tax deposits or increasing their tax withholdings from their
salary/wages.

--
Paul Thomas, CPA
paulthomascpapc[at]bellsouth.net

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My friend is going to create an s-corp. He wonders if he
should open a corporate bank account for the s-corp to
collect the s-corp income or if he can simply open another
personal account for the s-corp use. Either way, when he
redraws fund from the s-corp account as salary or divident
payment to himself, does he need to pay income tax on it?
ie. because the s-corp has paid corporate income tax on its
income, does its owner need to pay income tax when he gets
paid from the s-corp?

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