I wish that it was as easy as just filing a form with the State and you have magical tax savings and bullet-proof asset protection, but that’s simply not the case. Operating your business in the S-Corporation format can provide some amazing benefits, but if we don’t take care of the basics it could cause a lot of unexpected problems.
The reality is that the tasks can be easy and fairly affordable. Here are the items to check off on your “to-do list” when it comes to maintaining your entity and you’ll truly reap some tax benefits and have a serious level of asset protection.
Here is your ‘to-do-list of 7 things to be aware of if you want to PROPERLY maintain your S-Corp:
1. Annual Maintenance- It’s easy and affordable to simply make sure you hold your annual Shareholder and Director meetings. If you haven’t done your ‘Minutes’ in a few years, all is not lost. Complete what we call a ‘clean up’ and get on a system. Check out our CMP program at KKOS Lawyers and let your Paralegals take care of the details.
2. Corporate Documents– Review your initial set-up and make sure you have all of the key components of a proper formation; i.e. Articles, Bylaws, Minutes, Stock Certificates, Corporate Seal, etc… Remember it’s not just ‘filing with the State’ that creates a proper entity. In fact, it’s surprising how many new clients I meet with that “think” they have an S-Corporation and come to find out they never filed their S-Election (Form 2553) or they are out of compliance with the Secretary of State. This puts a major dagger into the heart of your S-Corporation Strategy.
3. Annual State Secretary of State Filings- Every state has a different filing fee and procedure for renewing your S-Corporation each year. If you don’t complete this filing, your corporation can be involuntarily dissolved and now you have nothing. You default to operating as a sole-proprietorship and the IRS can even take issue with your tax filings and disallow your tax filing if you aren’t in good standing with the State. Again, our CMP program at KKOS Lawyers will take care of this procedure for an affordable fee.
4. Regular Operations and ‘using the name’- To ensure much stronger asset protection in the event of a lawsuit, get into the habit of using your corporate name on all of your legal documents, advertising material, website and certainly your business cards. Let the world know you have incorporated. If you want the asset protection of an S-Corporation you have to let your customers, vendors and contacts know that ‘your company’ is the one doing business and you are simply an officer and employee of the corporation.
5. Quarterly Payroll-Setting up your personal payroll procedure is the most critical aspect of owning and operating an S-Corporation to save taxes. This process includes making sure you have a proper payroll level established for you that is realistic and not to aggressive, yet allows for maximum self-employment tax savings. Next, it requires that you file quarterly payroll reports and making deposits based on your particular situation. The deposits vary based on the amount of your payroll. This is a big topic and the strategy needs to be tailored to your situation…check out my Blog Article on this topic here and learn about the “Kohler Payroll Matrix”.
6. Tax Return Filing- It’s well recognized that S-Corporations provide incredible audit protection. It is estimated they are audited up to 15x less frequently than that of Sole-proprietorships. However, if you don’t file your tax returns on time and/or an extension, you will actually increase your chances of an audit dramatically and the penalties for late filing have gone through the roof. The required tax return is an 11020-S and is due by March 15th…UNLESS you file an Extension you have until September 15th to file the final return.
7. State Tax Filing Requirements- Every state is a little different when it comes to S-Corp filing requirements. Some states are cheap and easy, others are expensive and complex, with of course everything in between. Familiarize yourself with your State’s rules and get set up on a system with your accounting professional. Bottom line, the S-Corporation can be a powerful structure and tool to save on self-employment taxes and can also protect a business owner’s personal assets from lawsuits that may arise from their operations; but again all of this comes with an administrative cost. Make sure you are familiar with your responsibilities as an owner of this incredible small business tool and take your business operations to the next level.
Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the new book “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions” and “What Your CPA Isn’t Telling You- Life Changing Tax Strategies”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP. For more information visit him at www.markjkohler.com.