Accounting FAQs for Distribution Franchisees
How Do I Incorporate?
- Articles of Incorporation must be filed with the State. This document contains basic information about the company, its owners and directors. A filing service such as DSD Insurance can take care of all of the necessary paperwork.
How Do I Become an S-Corporation?
- Once you incorporate and have a Federal Employer Identification Number (FEIN), you have to file a Form 2553 with the Internal Revenue Service within 75 days of your incorporation date.
How Should I Name My Corporation?
- Your name must be unique and not deceptively similar to any other trademarked name of business.
Why Should I Elect To Be An S-Corp?
- One of the most common reasons that owners elect to form an S-Corp is that the profits are never taxed to the corporation. Instead, each individual owner is taxed on the company's profit on their individual tax returns.
What Happens If I Do Not Choose To Be An S-Corp?
- Profits that the corporation earns are taxed to the corporation and when the profits are distributed to the shareholders they are taxed again to the shareholder as dividend income.
Do I Need A Registered Agent?
- All corporations are required to a have registered agent on file with the State at all times. The agent can be you or a company that has a physical address in the State. The role of the Registered Agent is to receive any and all communications from the government to the corporation.
Do I Have to Pay Myself A Salary?
- Yes, the Internal Revenue Service requires that any shareholder that provides services to the corporation be paid a reasonable salary. Shareholders often try to pay themselves extremely low salaries because payroll taxes (Social Security, Medicare, and Unemployment Taxes) are paid only on salaries and not on corporate profits or distributions. Therefore, a reasonable salary is required. Our recommended Accounting and Tax Service Providers can help you determine your reasonable salary.
Can I Just Pay Myself On A 1099 Form?
- No, The IRS requires you to pay a reasonable salary. If you do not pay a reasonable salary you could be charged by the IRS with Back Payroll Taxes, Interest on Payroll Taxes, Penalties for failing to file the quarterly 941 forms, Penalties for failure to deposit withholding taxes and penalties for failing to issue a W2 form.
How Are Corporate Profits Taxed On My Return?
- A corporate tax return will be filed showing all of the income and expense of operating the route including your salary. The net profit shown on the tax return will be reported to you on a Form K-1. On your personal return you will be taxed on the salary and K-1 Income. For example: if your gross income is $140,000, your operating expenses are $40,000 and your salary is $50,000 - then your corporation will show a profit of $50,000. Your personal return will report a salary of $50,000 and corporate earnings of $50,000.
What Is Involved In Paying A Salary?
- If you pay yourself a weekly salary you will have to withhold federal income tax, social security, medicare, and state income tax. Federal payroll taxes withheld must be deposited with the IRS electronically each month and most states require monthly deposits as well. Every quarter an IRS Form 941 must be filed in addition to a State withholding report and a State unemployment report. Annually, the W2 forms and annual unemployment reports must be filed. Because of penalties charged for late filings and late deposits we recommend you consider using one of our recommended Accounting and Tax Service Providers.