How important is it to take into account all the legal and fiscal aspects of an “S” corporation? We cannot really dismiss any aspect with regard to legality and that includes the deadlines in which each of the necessary reports must be sent, either the annual tax return or the payroll reports to the Internal Revenue Service. Also, the information status to the Secretary of State of California, which informs if the corporation had any change or not during the year.
Why choose to convert your business into an “S” corporation? I, as a professional, recommend this form to manage your transportation business. Basically for three very important reasons: To move away from the Internal Revenue Service in what refers to audits, since as an independent contractors there is the possibility of 20 percent of being audited by the IRS and 2 percent for corporations. The other reason is to protect your property, since the corporation is a legal entity and as must be managed like this, that means, a well-established division of the corporation’s expenses and income must be maintained and not be mixed with your personal expenses. The third reason is that there is the possibility of saving up to 50 percent of taxes when you prepare your personal taxes after you have prepared the corporation’s taxes.
Based on the three reasons above, we can see that the choice to convert your business into an “S” corporation could be very beneficial; however this will only be achieved with discipline and responsibility. Why discipline? Because it is a new way of managing your business and that requires that you will need to keep a tighter control of expenses and income. You would also become an administrator of your corporation, being the number one employee and assigning a salary according to your work. Why responsibility? Because it will require to comply preparing the necessary reports for the federal and state government, thus avoiding unnecessary fines.
If we manage to maintain an adequate administration and integrate all the changes of the separation and limits between what is a corporation and what is personal, we would be ensuring a healthy corporation and staying away from problems with the government. Remember that there are other types of corporations, such as the Limited Liability Company (LLC), corporation C or Joint Venture, but these do not offer as many benefits as a “S” corporation.