How to Run a Small Wood Working S-Corp Business
To run any business it is important to determine whether or not to become a corporation and if so, what type. An S-corporation provides small businesses an opportunity to enjoy the tax benefits of large companies while avoiding additional income taxes and other detriments that come with being other types of corporations. To run a small wood working S-corp business, become familiar with legal filing requirements and determine the type of future investments from outside sources that may be required. S-corporations work well for partnerships as there are few investors and they are easy to establish.
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Instructions
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Determine if an S corporation is the right tax structure for a wood working business. According to the Internal Revenue Service, an S corporation allows for the business entity to pass on all tax liabilities to shareholders. In the case of a small business, this enables the owners to forego federal filings, which are time consuming and can be daunting. An S corporation prescribes that profits and losses be carried on to the individual but also requires that the shareholders be liable for income tax, employment taxes and excise taxes if applicable. An S corporation may have as few as one shareholder -- not uncommon for small businesses -- but may not exceed 75 shareholders.
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File for an S corporation status. To become an S corporation, the Internal Revenue Service requires Form 2553 be completed and filed. It is a three-part form that lists all shareholders and defines the business tax year. This form must be signed by all shareholders. Consult with an accountant if there are questions about the form.
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Set aside space for receipts, billing and other accounting needs. Get organized. Managing the cash flow of a wood working business is the same as managing it for any other small business. There are expenses and income and all need to be tracked and organized. Set aside space in your office or shop for receipts, billing and other accounting needs. This space needs to remain organized and include a file cabinet and an accounting system -- either computer or paper driven. A filing system is best organized by month and further by income and expenses. Hanging file folders make records easily accessible.
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Establish a personal tax savings account. Each month, conduct an audit of income and expenses and sweep a percentage ranging from 15 to 18 percent of the gross receipts into this account. This will ensure funds are set aside at tax time. The reporting of this is the responsibility of each shareholder; however, the business will be responsible for providing annual or quarterly statements.
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Conduct business as normal while maintaining cash flow-records. These records of income and expenses will be required to settle accounts at the end of each quarter or fiscal year. It will be best to hire an accountant who understands small business and corporate tax law. This will prevent costly mistakes in the future.
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Tips & Warnings
When filing for a corporate status, always consult with an attorney and an accountant who understand corporate tax law. Understand that a recognized S corporation by the federal government does not mean you will be recognized by the state government. Ask an attorney about state requirements.
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- Photo Credit woodwork image by Daniel Wiedemann from Fotolia.com hanging files image by Willee Cole from Fotolia.com
