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View Full Version : Just S - incorporated..mistake I think



ouroldfarm
07-08-2010, 09:28 PM
Wow. I really had no idea what I was getting into. All I really wanted to do was preserve our name, but the attorney wasn't all that informative about the whole process, and we incorporated prematurely I'm thinking.

What to do?

We're not even taking in an income yet, and don't plan to for at least 2 years. Now I've got to concern myself with $0 income returns for that time frame in addition to submitting no-tax due forms to the state every year. I'm really worried that I've gotten in too deep too quick.

Do I even need to send anything in on a quarterly basis to report no estimated tax, or just a return at the end of the year?

I guess I need some advice, encouragement or whatever.

Should I stick it out, or dissolve? I really think I complicated things here, and added a HUGE distraction to my efforts at getting our business off the ground.

Thanks.
Steve

vangogh
07-09-2010, 12:58 AM
Welcome to the forum Steve. Great name by the way.

This is far from my area of expertise. I'm mostly replying just to drive this post back to the top of the new posts list so it gets seen by the people who will have better advice.

I did a quick search for 'how to dissolve an s corporation' and found a couple of articles.

How to Dissolve an S Corporation (http://www.ehow.com/how_5978588_dissolve-corporation.html)
Should I dissolve S Corp or let be active? (http://www.asktaxguru.com/580-should-i-dissolve-s-corp-let-active.html)

The second link is to a forum thread with a question specifically about NJ corporations. From it though I take that you probably do need to file a return in order not to incur a penalty. Obviously things could be different in your state, but I'm guessing they're similar. Sounds like in NJ you have to file a minimum of $500 just for being a corporation.

You might want to call the IRS or the department of state of finances in your state. They get a bad rap, but they're generally helpful. Just guessing here, but if you only filed very recently there might a way to undo what you set up instead of going through the procedure of dissolving the corporation.

Hopefully the right people will see this now that I've bumped it.

ttaft
07-09-2010, 08:13 AM
Steve

Typically you would have consulted with an accountant also prior to incorporating. Filing zero returns with the state will take a maximum of 5 minutes. The same with the federal returns you will need to file.

Keep in mind that if your s_corporation is making any profit you Must take a reasonable salary. The IRS can and does recharaterize "Draws or Dividends" as income for those S_Corps who do not take a reasonable salary. Then you will have penalties and interest.

I would think now that you have done the S Election it would be cost prohibitive to dissolve and then turn around in 2 years to create a new one.

Business Attorney
07-09-2010, 09:43 AM
Wow. I really had no idea what I was getting into. All I really wanted to do was preserve our name...

Unfortunately, creating an entity does very little to "preserve" your name. Having an entity with a name pretty much gives you the rights to that EXACT name only in the state that the entity is formed in or registered to do business in, and nothing more. It does not give you any trademark protection, which you can only get by use (common law trademark) or by registration.

For example, if you form a corporation in Indiana called Green Acre Farms, Inc., someone else could set up a company in Michigan with the exact name. Someone else could set up another Indiana company named Green Acre Farms of Indiana, Inc. And still a third party, without even having Green Acre Farms in its name, could preempt the ability of any of the first 3 corporations to use the name as a trademark by actually using the name "Green Acre Farms" to brand its products.

It sounds like you should talk to someone who really understands your needs before you take any other steps.

Evan
07-10-2010, 06:09 PM
I'll echo David's advice in speaking to somebody else about your situation. I'm not sure why you'd form an entity when you have no use for it "now", but it's for the future. Seems like the lawyer was under the wrong impression, or there was miscommunication somewhere.

Generally though, if you aren't doing business, you shouldn't have to file any payroll returns -- but if you receive anything, file it with 0's and write "no payroll". You should just have the annual Federal 1120S, and the respective state S-Corporation return. You incurred costs of starting the business, and those should be reflected on the business return. You also are probably subject to a state income tax (or a minimum), in addition to filing an annual report with the Secretary of State. Those costs, whatever they may be, will be incurred regardless of whether the business is active or not. Those costs should be deducted on your tax return, resulting in a loss. If you have basis, those losses are deductible.

Depending on what the annual costs are, and the initial start up cost, I don't think we can properly advise you on what you should choose to do with the entity. Even if we were aware of the laws of your state, it's a personal decision. I would consult with the lawyer who drafted this agreement to see what's going on.

And if you incorporated and dissolve in the same return, you still must file a tax return.

ouroldfarm
07-12-2010, 09:13 AM
I want to thank everyone for replying to my frantic post. I'd been reading IRS publications and incorporation resolutions/by-laws for 4 days, and I think I let it get to my head.

I think we are going to trudge ahead, and stay incorporated even though we aren't generating revenue for 2 years. We don't have any costs other than the startup costs and filing. It would cost too much to have to dissolve, and re-incorporate later. I am certain that we made the right decision regarding business structure, that much I did research, we just did it a little early.

As a positive note I will certainly know a lot about corporate structure and taxation once we do start generating an income, and I'll be glad then that we went ahead and took the plunge I'm sure.

I was mainly worried about filing estimated taxes on a $0-revenue company, but you guys answered my questions good enough to make me feel confident about how to handle that. I also plan on talking to an accountant very soon to make sure I'm doing everything correctly as to avoid penalties.

Texas doesn't have a state income tax, but it does have a franchise tax for corporations who generate over $1mil. We won't be generating that much, so I'll only have to file a "no-tax-due" report to the Secretary of State every year in May. We also will not be subject to a sales tax as our products (unprepared farm goods) are exempt.

In the meantime can anyone recommend any books that I might read that will explain in plain English the ins an outs of corporate law and taxation?

Thanks.

Steve

Evan
07-12-2010, 11:57 AM
You don't file estimated taxes with "$0". If you expect to owe $1,000 or more to the federal government, estimated tax payments are required to avoid an underpayment penalty. States have a lesser threshold, $500 or less very commonly. The government generally doesn't mail you estimated tax payment coupons to send in, and certainly wouldn't until you make at least one estimated payment and they start expecting you to. But if you have no state income tax, then that isn't a worry, and the feds generally won't mail you coupons. You're on your own.

If you work with an accountant, (s)he should be able to help you with making estimated tax projections for the following year based on what you think will happen, and produce the vouchers for you to write a check and mail off.

As for recommended reading, a prior poster at this forum had me proofread his books, which are now published. Look for books (on say, Amazon.com) from Mike Piper. His books are titled "Surprisingly Simple"... and then explain a certain aspect. One of them is on types of entities, another is income taxes. He also has one titled Accounting Made Simple. Each of these books are 100 pages, so its a brief read. They're not going to be overly detailed, but I would say it is enough to give you the general insight you need.

And without insult, the "for Dummies" books are a great series as well.