Accounting for Corporations
Performing the accounting for a new corporation doesn't have to complicate the books. As a general rule, accounting for a corporation works the same way as does accounting for, say, a sole proprietorship. A handful of minor wrinkles should be noted, however...
Here's the rundown in laundry-list fashion:
You will want to setup a new bank account for the corporation and use it for all deposits into and withdrawals from the business.
You should buy and use an accounting software program such as Microsoft Money, Quicken, QuickBooks, or Microsoft Small Business Accounting to keep your books. Many businesses, by the way, can just track income when money is deposited into the bank account and count expenses when money is withdrawn from the bank account. However, if a business's revenues or assets exceed $250,000, the corporation must include a balance sheet listing of assets and liabilities with its annual federal tax return. To do this, you really want to buy, install and learn to use something like QuickBooks or Microsoft Small Business Accounting.
The corporation must "do" payroll even if the only employee or employees are shareholders. This means quarterly payroll returns and regular paychecks. Note that amounts paid to shareholders as shareholders are not wages but rather dividends (in the case of a C corporation) or distributions (in the case of an S corporation). You can, by the way, sign up with a payroll service such as ADP or Paychex or with a local bookkeeping service and have them do your payroll for you.
A couple of related, final comments about accounting for corporations.
First, the tax laws say you must have an accounting system that allows you to measure your taxable income. This requirement isn't just for corporations. It's is also for sole proprietorships and partnerships. But because sole proprietorships don't have to include balance sheets as part of their tax returns and may be able to avoid doing payroll (if the only employee is the owner) I want to mention that a corporation absolutely does require you or your bookkeeper to do a good job at the accounting.
And here's a second point to any reader saying to himself or herself, "oh, geez, more accounting? Maybe this corporation thing isn't for me..." As a CPA serving small businesses, I observe again and again that businesses which fail often don't have good accounting systems. I think there's a strong connection there. If you don't have a good accounting system to use in running your business, you're not going to be able to do as good a job at managing the business.
My suggestion, based on the preceding two points, is that you should be doing good accounting anyway, if you're serious about succeeding in your business. And the fact that the corporate tax laws require you to do this maybe isn't such a bad thing.
Additional Small Business Corporation Tax Resources
I've tried to supply lots of good, free general small business tax planning advice at this website. But I also sell three downloadable e-books (see below) that provide more specialized and powerful small business tax planning advice and commentary. If you're just starting out and cash flow is tight, you probably don't need (yet) the sort of information covered in these resources. But if your business is already profitable or about to become profitable, these guides truly should save you big amounts of business tax. But enough pushy selling...
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