Small Business Services

A close corporation is also known as a closely held corporation. It is a corporation in which the stock of the corporation cannot be traded on a public exchange such as the NYSE, NASDAQ, etc. and the number of shareholders must be specified, and typically cannot exceed 35 and certain limitations may be placed on the transfer of stock. A close corporation can be advantageous for small businesses.

Both entities provide the benefits of pass-through taxation to avoid double taxation of profits as well as limited liability for the owners.
S Corporations pass-through income to the shareholders who pay no Self Employment tax on that income, While LLC income is subject to self- employment tax.
S corporations have restrictions which are not applied to limited liability companies.
Limited liability companies cannot issue stock, but rather, they offer memberships. S corporations, issue stock and are owned by the shareholders. S corporations are managed by the directors and officers, while limited liability companies are managed directly by the members unless they hire managers

A limited liability corporation offers limited liability to its owners, but may elect to be taxed as a partnership which passes all the income and losses through to its owners. A C corporation is taxed at the federal level and profits are either retained by the corporation or distributed to the shareholders. A profit distribution is called issuing a dividend. These profits are then taxed as income in the shareholders personal taxes. Witha LLC, the owner has options of how to be taxed. Ithe IRS allows 3 choices. A Corporation tax like a general C corporation, Partnership taxation like a S corporation or

Incorporation can provide many benefits. The most important factor is that incorporation can help limit your personal liability as a business owner.
Generally, creditors of your corporation must satisfy their claims by seizing the assets of the corporation rather than your personal assets.
In contrast to a sole proprietor or partner in a partnership, you are financially responsible for all liabilities of the business, and your personal assets are subject to seizure or lien by creditors.
Other benefits of incorporation can include greater tax deductions for health insurance and medical expenses, lower payments for Social Security tax and Medicare tax, and greater opportunity to raise capital for the business through the issuance of stock.

Generally, the IRS requires 2 types of records for substantiation. You should maintain a diary (calendar diary recommended)or account book to list the place, time, who you met with, and the business purpose of your travel and entertainment.
Receipts, itemized bills or similar statements for lodging are needed regardless of the amount.
For other expenses of $75 or more a receipt is needed. A bill should show the amount of the expense, the date of the expense, where the expense was incurred and the nature of the expense.

Amounts you pay your trade association are deductible if the trade association is conducted for the purpose of furthering the business interests of its members. The amount is deductible as a miscellaneous expense on on IRS Schedule C.

Most individuals and many sole proprietors with no inventory use the cash method because they find it easier to keep cash method records.
However, if an inventory is necessary to account for your income, you must generally use an accrual method of accounting for sales and purchases.
Generally, if you produce, purchase, or sell merchandise in your business, you must keep an inventory and use the accrual method for purchases and sales of merchandise.
However, the following taxpayers can use the cash method of accounting even if they produce, purchase, or sell merchandise. These taxpayers can also account for inventorial items as materials and supplies that are not incidental . A qualifying taxpayer under Revenue Procedure 2001-10 in Internal Revenue Bulletin 2001-2. or A qualifying small business taxpayer under Revenue Procedure 2002-28 in Internal Revenue Bulletin 2002-18. You are a qualifying taxpayer if: Your average annual gross receipts for each prior tax year ending on or after December 17, 1998, is $1 million or less. (Your average annual gross receipts for a tax year is figured by adding the gross receipts for that tax year and the 2 preceding tax years and dividing by 3.) Your business is not a tax shelter, as defined under section 448(d)(3) of the Internal Revenue Code.
You are a qualifying small business taxpayer if: Your average annual gross receipts for each prior tax year ending on or after December 31, 2000, is more than $1 million but not more than $10 million. (Your average annual gross receipts for a tax year is figured by adding the gross receipts for that tax year and the 2 preceding tax years and dividing the total by 3.)
You are not prohibited from using the cash method under section 448 of the Internal Revenue Code.Your principal business activity is an eligible business (described in Publication 538 and Revenue Procedure 2002-28) Business not owned or not in existence for 3 years.
If you did not own your business for all of the 3-tax-year period used in figuring your average annual gross receipts, include the period of any predecessor.
If your business has not been in existence for the 3-tax-year period, base your average on the period it has existed including any short tax years, annualizing the short tax year's gross receipts.

Taxpayers are entitled to deduct any expenses for using their homes for business purposes if the expenses are attributable to a portion of the home or separate structure used Exclusively and On A Regular Basis as the principal place of any business carried on by the taxpayer (occasional use is not sufficient) or a place of business that is used by clients, customers, patients, in meeting or dealing with the taxpayer in the normal course of business. If the taxpayer is an employee, the business use of the home must also be for the convenience of the employer. A home office deduction may be claimed if the taxpayer regularly and exclusively uses part of the home for conducting the administrative or management activities of the business. Home office expenses may include real estate taxes, mortgage interest and operating expenses such as insurance and utilities and also depreciation. Home office deductions may be limited. The allowed deduction is calculated and reported on IRS Form 8829 and then transferred to the taxpayers Schedule C. There are certain tax consequences of claiming an office in the home deduction. A consequence occurs when the taxpayer sells his residence. Current law allows $500,000 exclusion on the sale of a residence ($250,000 for non-joint returns). If a residence is sold with a home office, the gross sales price must be apportioned over the residence and the business office. A taxable gain on the sale may occur. If a residence is sold without a home office the full exclusion may be taken. Some CPA's suggest not claiming an office in your home for the two years prior to the sale of the residence. Speak to your local CPA about your specific circumstances to work out a strategy that works for you.

You should initially apply online. Go to www.irs.gov/businesses and click on employer ID numbers. Your local IRS service center can also assist you in getting a Federal EIN. The phone number is 1-800-829-4933: