FINDING A COMPANY STATUS AND TAXES
March 9, 2022 - Douglas Myser
Finding a company status and taxes. We have dealt with a multitude of companies who fell behind on their taxes due to incorrectly filing for the proper status when they started the company. Several of these companies, painfully, found out the only way to fix the IRS debt they owed, was to re-file what they thought were correctly filed tax returns. The returns were incorrect due to improper status, and the IRS denied the tax returns. The only way to fix a problem like that is to re-file the returns, which will cause a large amount of penalties and interest. So making sure that you choose the correct status is vital, unless you want ot dig a hole at the beginning of your new business venture. Finding a company status and taxes.
One form of status is the C Corporation. A C-Corp is a business with an unlimited number of owners called shareholders. Each shareholder owns a piece of the company and profits are distributed among them as dividends. If the owner of a corporation actively works for the corporation, the owner generally would receive a salary which would be reported on a W-2. The corporation would pay the employer's share of the social security and Medicare taxes as well as withhold taxes for the owner. The IRS considers C Corps and their shareholders as separate legal entities, which means the company is taxed on its profits and the shareholders are individually taxed when those profits are distributed. This is called a double tax. When this happens a solution might be the IRS Fresh Start Program. While double taxation may sound unpleasant, a corporation does pose some benefits. The profits are not required to be distributed and can be used in other ways.
The C Corp structure also gives liability protection to the shareholders, as the C Corp is a separate legal entity. Most companies should not choose the C Corp structure unless they see the company growing to at least $5 million in annual revenue, according to the IRS. If your company was not structured properly, and you find you have a tax liability, try calling a Tax Resolution Services firm for help. T hat way you can avoid a IRS Wage Garnishment.