<p>The legal entity type you select will have significant tax implications for you and your small business. That's why it's so important to understand the strengths and weaknesses of each entity before making a selection.<br><br>In this blog, we'll tell you everything you need to know about C corporations, including what it is, the steps you would take to form a C corp, the benefits of that entity type for your small business, potential downsides, and more.&nbsp;</p>



<h2 class="wp-block-heading">What is a C Corporation?</h2>



<p>You may have heard of partnerships or a limited liability company and their tax advantages, but a C corp is a different type of corporation.<br><br>A C corporation is a type of corporate structure taxed separately from its owners and shareholders. While other entities, such as S corporation, share similarities, there are some key differences between the two entities.<br><br>S corporation or C corporation business structure? Here are the differences, including the taxation of a C corporation, that you should know about when evaluating a <a class="link" href="https://1800accountant.com/blog/s-corp-vs-c-corp">C corp vs. S corp</a>:&nbsp;</p>



<ul>
<li>C corp taxes are applied at both the corporate income tax and personal income tax levels, called double taxation, while S corporations pay taxes at an individual level.</li>



<li>C corporations must issue stock and can have an infinite number of shareholders. S corporations are limited to 100 stockholders.</li>



<li>C corporations are required to make quarterly estimated income tax payments, while S corporations only do it once a year.</li>



<li>Unlike S corporations, owners and shareholders of C corporations do not have to be U.S. citizens or residents. Other businesses rather than individuals can own C corporations.</li>



<li>As a C corporation, there’s no deduction for corporate losses, so shareholders cannot deduct losses on their personal tax returns.</li>
</ul>



<h2 class="wp-block-heading">How to Form a C Corporation&nbsp;</h2>



<p>The steps you'll take for forming your business as a C corporation are reasonably straightforward and similar to the formation process for other entities.</p>



<ol>
<li><strong>Select a business name.</strong> The name you select must be unique. You’ll want to check with your state and local business authorities to ensure no other company uses a similar or identical name.<br></li>



<li><strong>Articles of incorporation. </strong>You’ll need to develop your business's articles of incorporation and submit them to your Secretary of State to form your business legally. It's essential to include your unique business name, address, registered agent information, and details about the type of stock you'll be issuing.<br></li>



<li><strong>Stock.</strong> The stock highlighted in your articles of incorporation is distributed to shareholders who comprise the ownership of your business.<br></li>



<li><a class="link" href="https://1800accountant.com/blog/ein"><strong>Employer Identification Number (EIN)</strong></a><strong>.</strong> An EIN, also known as a Federal Tax ID, is like a Social Security number for your business, which the IRS uses to identify you for tax purposes. If you intend to hire employees, open a business bank account, or file business taxes, you must obtain an EIN.<br></li>



<li><strong>Board of Directors.</strong> You must establish a board of directors who will oversee your C corporation's operations.&nbsp;</li>
</ol>



<h2 class="wp-block-heading">C Corporation Taxes</h2>



<p>C corporations are subject to double taxation at the corporate and individual levels. The current <a class="link" href="https://1800accountant.com/blog/corporate-tax-rates">corporate tax rate</a> is 28%. Here's what to know about the taxation of a C corporation.</p>



<p>To prepare your C corporation taxes, you must use <a class="link" href="https://1800accountant.com/blog/1120-tax-form">Form 1120</a> to report your business’s financial information, including taxable income, gains, losses, deductions, and credits. If your assets surpass $10 million and you file over 250 returns annually, you must file this form online.</p>



<p>C corporations must also pay employment taxes, which include FICA (Social Security and Medicare) and unemployment taxes. You must use Forms 940 and 941 to report these taxes.</p>



<p>Sections you'll need to complete in Form 1120:</p>



<ul>
<li>Basic Information About Your C corporation: This consists of your business’s legal name, address, EIN, date of incorporation, and total assets.</li>



<li>Corporate Income: This is your gross receipts or sales, returns and allowances, cost of goods sold, gross profit, dividends, interest, gross rents, gross royalties, and capital gains.</li>



<li>Tax-Deductible Expenses: These expenses include advertising, charitable contributions, repairs and maintenance, employee benefit programs, etc. You do not need to attach documentation, but keep your records in case of an IRS audit.</li>



<li>Tax, Refundable Credits, and Payments: This section aims to determine if you need to receive a tax refund or owe taxes to the IRS.</li>



<li>Schedule A – Cost of Goods Sold: If your business deducts the cost of goods from gross income, you must report this information in this section.</li>



<li>Schedule C – Dividends and Special Deductions: If dividends or special deductions have been claimed, you must record this information here.</li>



<li>Schedule E – Compensation of Officers: Document the compensation amounts of your corporate officers in this section.</li>



<li>Schedules J and K: These sections indicate your business's accounting method and information that can affect your corporate tax rate.</li>



<li>Schedules L, M-1, and M-2: In these sections, you need to attach your business’s balance sheet, document the reconciliation of income loss, and analyze unappropriated retained earnings.</li>
</ul>



<h2 class="wp-block-heading">Benefits of forming a C Corporation</h2>



<p>There are numerous advantages of a C corporation,&nbsp; including the following popular features.&nbsp;</p>



<h3 class="wp-block-heading">Limited liability protection&nbsp;</h3>



<p>C corporation shareholders/owners enjoy limited liability protection, which protects their personal assets. This means they aren't personally responsible for their C corporation's liabilities and debt.&nbsp;</p>



<h3 class="wp-block-heading">Unlimited number of shareholders</h3>



<p>Unlike S corporations, which must limit their shareholders, C corporations can offer shares to an unlimited number of shareholders, including both private individuals and public entities.&nbsp;</p>



<h3 class="wp-block-heading">Perpetual existence</h3>



<p>C corporations feature perpetual existence, meaning they will continue to exist even after ownership departs.&nbsp;</p>



<h3 class="wp-block-heading">Increased credibility&nbsp;</h3>



<p>C corporations often have greater credibility than other entities in the eyes of third parties, including suppliers, vendors, and potential investors.&nbsp;&nbsp;</p>



<h2 class="wp-block-heading">Potential downsides&nbsp;</h2>



<p>If your business would benefit from forming as a C corporation, there aren't many downsides. However, two issues often give prospective C corporation ownership pause.&nbsp;</p>



<ul>
<li>C corp double taxation. C corporations are subject to double taxation at the corporate and individual levels. This differs from other business entity types, where ownership is only taxed on the individual level.</li>
</ul>



<ul>
<li>Complex. It is much more challenging to run a C corporation than other entities. There are many more requirements to comply with as a C corporation, while entities such as sole proprietorships or single-owner LLCs are less formal.&nbsp;&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Role of Shareholders, Directors, and Officers in a C Corporation</h2>



<p>While these roles are unique in certain ways, they might also intersect. For instance, a person appointed to a director role might also own shares in the corporation.<br><br>Shareholders are the owners of the corporation and appoint directors. Directors are typically appointed to oversee management and will appoint officers. Officers are usually involved in the day-to-day happenings of the corporation.&nbsp;</p>



<h2 class="wp-block-heading">Partner with C Corporation Experts to ensure a path to success</h2>



<p>Complying with the various C corp requirements can be difficult. That's why so many small business owners and entrepreneurs trust 1-800Accountant, America's leading virtual accounting firm for small businesses, for their corporate needs.<br><br>Whether it's <a class="link" href="https://1800accountant.com/services/entity-formation">C corp formation</a>, <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, or any of our professional accounting services, we have the affordable solution you need to help your C corporation stay compliant. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.&nbsp;</p>

The legal entity type you select will have significant tax implications for you and your small business. That&#8217;s why it&#8217;s so important to understand the strengths and weaknesses of each entity before making a selection. In this blog, we&#8217;ll tell you everything you need to know about C corporations, including what it is, the steps [&hellip;]

everything-you-need-to-know-about-a-c-corporation_blog-header

Everything You Need to Know About Your C Corporation

<p>You may be wondering: "Why create a chart of accounts?"<br><br>Even a basic chart of accounts is an excellent way to view your <a class="link" href="https://1800accountant.com/blog/bookkeeping-101-keep-good-financial-records">business's finances</a>. The purpose of a chart of accounts is to aid in decision-making for your small business by tracking transactions and organizing the results in an easily digestible format.<br><br>In this blog, we'll go into detail about what a chart of accounts is, how to create one for your business, critical real-world examples, and other helpful information that provides you with a comprehensive picture. </p>



<h2 class="wp-block-heading">Understanding the small business chart of accounts</h2>



<h3 class="wp-block-heading">What is a chart of accounts?</h3>



<p>Your chart of accounts allows you to view multiple <a class="link" href="https://1800accountant.com/blog/common-bookkeeping-terms">financial transactions</a> along with a description, identification number, and name of each. You're able to view the chart of accounts categories within a general ledger, which includes:&nbsp;</p>



<ul>
<li>Assets</li>



<li>Liabilities</li>



<li>Shareholder’s equity</li>



<li>Revenue</li>



<li>Expenses</li>
</ul>



<h3 class="wp-block-heading">Main chart of accounts components</h3>



<p><strong>Assets</strong><br>What your business owns are called assets, and you'll track two types: current and noncurrent. The assets section in your chart of accounts will begin with the account number "1000."<br><br>Current assets include assets your business will use in the next year, such as:</p>



<ul>
<li>Accounts receivable&nbsp;</li>



<li>Cash</li>



<li>Inventory</li>



<li>Prepaid expenses</li>
</ul>



<p>Noncurrent assets or long-term assets are assets that will be used for longer than one year, including the following: </p>



<ul>
<li>Accumulated depreciation</li>



<li>Buildings</li>



<li>Furniture and fixtures</li>



<li>Leases&nbsp;</li>



<li>Plant and equipment</li>



<li>Vehicles</li>
</ul>



<p><strong>Liabilities</strong><br>Your business owes liabilities. This section begins with the account number "2000," and like your assets, you'll track both current and noncurrent liabilities.</p>



<p>Current liabilities, or short-term liabilities, include liabilities that your business will use next year. Current liabilities include:&nbsp;</p>



<ul>
<li>Loans and mortgages payable</li>



<li>Payroll taxes payable</li>



<li>Sales taxes payable</li>
</ul>



<p>Noncurrent liabilities or long-term liabilities are liabilities that will be used for longer than one year, including:&nbsp;</p>



<ul>
<li>Loans payable</li>



<li>Mortgages payable</li>
</ul>



<p><strong>Equity</strong><br>Equity refers to shareholder equity in your chart of accounts and will begin with the account number "3000." Common examples of equity found in your chart of accounts include: </p>



<ul>
<li>Common stock</li>



<li>Preferred stock</li>



<li>Retained earnings</li>
</ul>



<p><strong>Revenue</strong><br>Revenue is the income your business makes, primarily or secondarily. There are two revenue types that begin with the account number "4000" in your chart of accounts: operating revenue and non-operating revenue.</p>



<p>Operating income is the income that your business primarily makes. Non-operating revenue is revenue that your company makes indirectly. This form of revenue can come from:&nbsp;</p>



<ul>
<li>Asset write-downs</li>



<li>Dividend income&nbsp;</li>



<li>Foreign exchange gains or losses</li>



<li>Interest income</li>



<li>Profits or losses from investments</li>



<li>Rental income from property</li>
</ul>



<p><strong>Expenses</strong><br>There are two expense types: operating expenses and non-operating expenses, which will begin with the account number "5000."</p>



<p>Operating expenses are expenses that occur to cover operational costs. You may have expenses from the following:&nbsp;</p>



<ul>
<li>Equipment&nbsp;</li>



<li>Insurance</li>



<li>Inventory costs&nbsp;</li>



<li>Marketing</li>



<li>Payroll</li>



<li>Step costs</li>
</ul>



<p>Non-operating expenses are expenses unrelated to business operations. These include:&nbsp;</p>



<ul>
<li>Amortization&nbsp;</li>



<li>Depreciation</li>



<li>Interest charges</li>
</ul>



<h3 class="wp-block-heading">Importance of structure and organization&nbsp;</h3>



<p>There are two critical areas where your chart of accounts is vital for your business.<br><br><strong>1) Structure</strong>. How your chart of accounts is structured allows you to view all of your business's financial transactions based on the general ledger. This allows you to search transactions swiftly.<br><br><strong>2) Organization</strong>. A second benefit to the organization of a chart of accounts is that you can use this information for investment opportunities. This lets prospective investors or shareholders determine your business's financial health via the financial information provided. </p>



<h2 class="wp-block-heading">Components of a chart of accounts</h2>



<p>The information you record in your chart of accounts provides the data necessary to create your business's financial statements. All of your accounts will appear in these statements, with the chart of accounts determining which statement they should appear in. If your chart of accounts is outdated or incorrectly structured or organized, your statements won't be correct, either.<br><br>The financial statements include the following:&nbsp;</p>



<ul>
<li><strong>Income Statement</strong>. Also known as a profit and loss statement, this statement focuses on your business's revenue and expenses.&nbsp;</li>



<li><strong>Cash Flow Statement</strong>. This statement records the total cash from various sources, including petty cash, and cash going out of your business in support of your operations.&nbsp;</li>



<li><strong>Balance Sheet</strong>. This sheet records your business's assets, liabilities, shareholder equity, and debt.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">How to create a chart of accounts</h2>



<p>To set up your chart of accounts, you'll create three columns to help you categorize: an Account Name, Type of Account, and Description.</p>



<ul>
<li><strong>Account Name</strong>. You’ll list your account names in this column.&nbsp;</li>



<li><strong>Type of Account</strong>. This column, to the right of Account Name, will list the account that you’re adding. You can select from an asset, cost of goods sold, equity, expense, income, or liability.</li>



<li><strong>Description. </strong>The final column, to the Type of Account's right, describes the transaction that occurred.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Real-world examples of standard chart of accounts</h2>



<p>Medical practice chart of accounts (chart of accounts example 1)</p>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Account Type</strong></td><td><strong>Account Code</strong></td><td><strong>Account Name</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1010</strong></td><td><strong>Cash - Operating Account</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1020</strong></td><td><strong>Cash - Savings Account</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1030</strong></td><td><strong>Medical Supplies Inventory</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2010</strong></td><td><strong>Medical Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2020</strong></td><td><strong>Office Furniture</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2030</strong></td><td><strong>Accumulated Depreciation - Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2040</strong></td><td><strong>Accumulated Depreciation - Furniture</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3010</strong></td><td><strong>Accounts Payable</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3020</strong></td><td><strong>Payroll Liabilities</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3030</strong></td><td><strong>Unearned Revenue</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4010</strong></td><td><strong>Owner's Capital</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4020</strong></td><td><strong>Retained Earnings</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5010</strong></td><td><strong>Patient Service Revenue</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5020</strong></td><td><strong>Miscellaneous Revenue</strong></td></tr><tr><td><strong>Cost of Goods Sold</strong></td><td><strong>6010</strong></td><td><strong>Medical Supplies Expense</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7010</strong></td><td><strong>Salaries &amp; Wages</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7020</strong></td><td><strong>Rent or Mortgage Expenses</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7030</strong></td><td><strong>Utilities</strong></td></tr></tbody></table></figure>



<p>Restaurant chart of accounts (chart of accounts example 2)</p>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Account Type</strong></td><td><strong>Account Code</strong></td><td><strong>Account Name</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1010</strong></td><td><strong>Beverage Supply Inventory</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1020</strong></td><td><strong>Food Supply Inventory</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>1030</strong></td><td><strong>Prepaid Expenses</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2010</strong></td><td><strong>Kitchen Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2020</strong></td><td><strong>Dining Furniture</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2030</strong></td><td><strong>Accumulated Depreciation - Kitchen Equipment</strong></td></tr><tr><td><strong>Assets</strong></td><td><strong>2040</strong></td><td><strong>Accumulated Depreciation - Dining Furniture</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3010</strong></td><td><strong>Accounts Payable</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3020</strong></td><td><strong>Payroll Liabilities</strong></td></tr><tr><td><strong>Liabilities</strong></td><td><strong>3030</strong></td><td><strong>Loans</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4010</strong></td><td><strong>Owner's Capital</strong></td></tr><tr><td><strong>Equity</strong></td><td><strong>4020</strong></td><td><strong>Retained Earnings</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5010</strong></td><td><strong>Dining Revenue</strong></td></tr><tr><td><strong>Revenue</strong></td><td><strong>5020</strong></td><td><strong>Miscellaneous Revenue</strong></td></tr><tr><td><strong>Cost of Goods Sold</strong></td><td><strong>6010</strong></td><td><strong>Food, beverage, and employee Expense</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7010</strong></td><td><strong>Salaries &amp; Wages</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7020</strong></td><td><strong>Insurance</strong></td></tr><tr><td><strong>Expenses</strong></td><td><strong>7030</strong></td><td><strong>Depreciation Expense</strong></td></tr></tbody></table></figure>



<h2 class="wp-block-heading">Maintaining and updating a chart of accounts</h2>



<p>You will make adjustments to your chart of accounts as time goes on. But before you start, here are a couple of things to keep in mind.&nbsp;</p>



<ul>
<li>First, if you want to add an account to your chart of accounts, you should do so before it becomes a problem. While you can add transactions at any point in the year, you don’t want to delay adding transactions and their accompanying information. If you wait, then you may need to adjust other entries in related categories or subcategories, causing more issues.</li>
</ul>



<ul>
<li>Second, if you add an account, it is helpful to designate a name for it. The name most commonly used for newly added accounts is Miscellaneous Expenses. You should use this name whether you have one uncategorized transaction out of the year or multiple uncategorized transactions.&nbsp;</li>
</ul>



<ul>
<li>Third, if you add a Miscellaneous Expense to your account, provide a more detailed explanation than usual. Even though you’ve already added a description, you want to explain how and why this expense differs. As you add accounts to this category, make adjustments as needed.</li>
</ul>



<ul>
<li>Finally, and most importantly, you shouldn’t delete any accounts until the end of the year. If you delete the accounts earlier, that can create additional disruptions.&nbsp;</li>
</ul>



<h2 class="wp-block-heading">Partner with professionals who understand the chart of accounts</h2>



<p>Financial data and financial reporting are an important addition to any small business and can be harvested from many areas, including the following: </p>



<ul>
<li>Expense accounts</li>



<li>Asset accounts</li>



<li>Balance sheet accounts</li>



<li>Equity accounts</li>



<li>Financial accounts</li>



<li>Liability accounts</li>



<li>Revenue accounts</li>



<li>Sub-accounts</li>
</ul>



<p>A chart of accounts isn't required, but the valuable insights it provides can contribute to critical data-backed decision-making for your small business. However, creating and managing a chart of accounts is often too much for many busy owners and entrepreneurs to handle, which is why so many of them trust 1-800Accountant, America's leading virtual accounting firm for small businesses, <a class="link" href="https://1800accountant.com/blog/outsourced-bookkeeping-guide">for their needs</a>.</p>



<p>Whether it's <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, <a class="link" href="https://1800accountant.com/services/bookkeeping">bookkeeping for the chart of accounts</a>, robust <a class="link" href="https://1800accountant.com/blog/catch-up-bookkeeping">educational content</a>, or any of our professional accounting services, we have the solution you need at a price that fits within your budget. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help.&nbsp;</p>

You may be wondering: &#8220;Why create a chart of accounts?&#8221; Even a basic chart of accounts is an excellent way to view your business&#8217;s finances. The purpose of a chart of accounts is to aid in decision-making for your small business by tracking transactions and organizing the results in an easily digestible format. In this [&hellip;]

chart-of-accounts-a-comprehensive-guide_blog-header

Chart of Accounts: A Comprehensive Guide with Real-World Examples

<p>Taxes can be a headache, especially when you’re unsure of the technical rules.&nbsp;</p>



<p>Section 179 allows taxpayers to take an immediate <a class="link" href="https://1800accountant.com/blog/tax-deductions-work">tax deduction</a> for property placed in service during the year instead of deducting the cost over several years.&nbsp;</p>



<p>This article will explain the Section 179 rules and help you understand how to take advantage of the tax deduction.&nbsp;</p>



<p>You’ll also get a step-by-step guide for compliance with Section 179 tax reporting requirements.&nbsp;</p>



<h2 class="wp-block-heading">What Is Section 179?</h2>



<p>Section 179, described in <a class="link" href="https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section179&amp;num=0&amp;edition=prelim" target="_blank" rel="noreferrer noopener">Internal Revenue Code Section 179</a>, is a tax depreciation deduction. Taxpayers can take the Section 179 tax deduction for business equipment purchases. The rules encourage business growth by incentivizing equipment purchases.</p>



<p>Eligible property should meet IRS requirements, which we’ll discuss next.&nbsp;</p>



<h2 class="wp-block-heading">Who Is Eligible for Section 179?</h2>



<p>The following business types may take the Section 179 tax deduction:&nbsp;</p>



<ul>
<li>C corporations<br></li>



<li>Partnerships<br></li>



<li>S corporations<br></li>



<li>Sole proprietorships&nbsp;</li>
</ul>



<p>Pass-through entities should report the Section 179 expense and pass the tax deduction on to the business owners. Trusts and estates are not eligible for the Section 179 deduction.&nbsp;</p>



<p><a class="link" href="https://1800accountant.com/services/small-business-taxes">Consult your tax professionals</a> to discuss which tax deductions your business can take.</p>



<h3 class="wp-block-heading">What Property Is Eligible for the Section 179 Tax Deduction?</h3>



<p>The IRS allows a deduction for various types of business property, including the following:&nbsp;</p>



<ul>
<li>Buildings<br></li>



<li>Machinery and equipment<br></li>



<li>Furniture<br></li>



<li>Vehicles<br></li>



<li>Off-the-shelf computer software<br></li>



<li>Patents and copyrights (restrictions apply)&nbsp;</li>
</ul>



<p>The following property is <em>not</em> eligible:&nbsp;</p>



<ul>
<li>Land<br></li>



<li>Section 197 intangibles<br></li>



<li>Custom software</li>
</ul>



<h2 class="wp-block-heading">How Does Section 179 Work?</h2>



<p>Your business may take a Section 179 deduction on its tax return for the same year it purchases eligible property.&nbsp;</p>



<p>Your business must actively use the property at least 50% of the time. For example, a new espresso machine for your coffee shop is likely eligible, while a new espresso machine for your home kitchen is not.&nbsp;</p>



<p>Your business is not required to deduct the entire cost of the property – you may choose to take a portion (or none) of the available deduction.&nbsp;</p>



<p>Why is Section 179 beneficial?&nbsp;</p>



<p>Traditional depreciation rules require taxpayers to deduct property costs over several years. In contrast, Section 179 allows taxpayers to deduct the cost of the property right away. Your business can benefit by aligning tax deductions (and lower taxable income) with equipment purchases.</p>



<h3 class="wp-block-heading">2023 Section 179 Limits</h3>



<p>The <a class="link" href="https://www.irs.gov/publications/p946#en_US_2022_publink1000107413" target="_blank" rel="noreferrer noopener">IRS imposes annual limitations</a> on each taxpayer’s Section 179 deduction. Consider the following rules to determine your Section 179 tax deduction for the year.</p>



<h4 class="wp-block-heading">The Dollar Limit and “Phase-Out” Threshold</h4>



<p>The tax year 2023 Section 179 dollar limit, or maximum deduction, is $1,160,000. <a class="link" href="https://1800accountant.com/blog/car-small-business-tax-deduction">Sport utility vehicles</a> have a $28,900 deduction limit.</p>



<p>The Section 179 dollar limit phases out for taxpayers who purchase eligible property totaling more than $2,890,000. Purchases above the threshold reduce the maximum deduction. The Section 179 dollar limit decreases to zero once equipment purchases total $4,050,000.</p>



<p>For example, imagine your business bought new office equipment totaling $3,500,000 in 2023. The maximum Section 179 deduction would be $550,000:&nbsp;</p>



<figure class="wp-block-table"><table><tbody><tr><td>Total eligible property purchased in 2023</td><td>$3,500,000</td></tr><tr><td>Less: 2023 IRS phase-out threshold</td><td>($2,890,000)</td></tr><tr><td>Excess of eligible purchases in 2023</td><td>$610,000</td></tr><tr><td></td><td></td></tr><tr><td>2023 IRS Section 179 dollar limit&nbsp;</td><td>$1,160,000</td></tr><tr><td>Less: Excess of eligible purchases in 2023</td><td>($610,000)</td></tr><tr><td>2023 Reduced Section 179 dollar limit</td><td>$550,000</td></tr></tbody></table></figure>



<h4 class="wp-block-heading">The Section 179 Business Income Limitation</h4>



<p>After applying the Section 179 dollar limit, each taxpayer can take a Section 179 deduction to the extent of their taxable income.&nbsp;</p>



<p>If your taxable income limit prevents you from taking your entire Section 179 deduction, the IRS offers relief: You can carry the excess to the following tax year.</p>



<p>Continuing the above example, imagine your 2023 business taxable income was $400,000 without the Section 179 tax deduction. Even though your Section 179 dollar limit was $550,000, your 2023 business income limitation would be $400,000.&nbsp;</p>



<p>However, your business could carry forward the remaining $150,000.&nbsp;</p>



<p>Want to know how the phase-out threshold and business income limitation apply to your business? <a class="link" href="https://1800accountant.com/services/small-business-taxes">Check with professionals for help with tax calculations</a>.&nbsp;</p>



<h3 class="wp-block-heading">Bonus Depreciation and How It Works with Section 179</h3>



<p>Bonus depreciation, governed by <a class="link" href="https://www.law.cornell.edu/uscode/text/26/168" target="_blank" rel="noreferrer noopener">Internal Revenue Code Section 168(k)</a>, follows separate, complex rules. Generally, taxpayers may deduct 80% of the cost of eligible property placed in service during 2023.</p>



<p>How does bonus depreciation work with Section 179?&nbsp;</p>



<p>Your business should deduct Section 179 depreciation first. After calculating your Section 179 tax deduction, determine whether your remaining property is eligible for bonus depreciation. Your bonus depreciation deduction represents 80% of the remaining property cost.&nbsp;</p>



<h2 class="wp-block-heading">How to Claim the Section 179 Deduction</h2>



<p>Follow our step-by-step guide to take advantage of your Section 179 tax deduction. We also recommend referring to the detailed instructions in <a class="link" href="https://www.irs.gov/publications/p946" target="_blank" rel="noreferrer noopener">IRS Publication 946</a>.</p>



<h3 class="wp-block-heading">Step 1: Determine Which Property Qualifies for Section 179&nbsp;</h3>



<p>Gather your equipment purchase records. Consider the property you placed in service during the year and determine your eligibility for the Section 179 deduction.&nbsp;</p>



<p>Remember, your business should actively use the property at least 50% of the time.&nbsp;</p>



<h3 class="wp-block-heading">Step 2: Figure Your Section 179 Dollar Limit</h3>



<p>Did you purchase less than $2,890,000 of eligible property in 2023? If so, you’re entitled to the entire Section 179 deduction, depending on your taxable income. Refer to the phase-out threshold if your purchases exceed the limit.&nbsp;</p>



<p>Follow the separate limitations that apply to sport utility vehicles.&nbsp;</p>



<h3 class="wp-block-heading">Step 3: Calculate Your Business Income Limitation</h3>



<p>Your Section 179 depreciation is limited to your taxable income without the deduction. Determine your taxable income to figure out the maximum deduction you can take.&nbsp;</p>



<h3 class="wp-block-heading">Step 4: Complete IRS Form 4562, Part I</h3>



<p><a class="link" href="https://www.irs.gov/pub/irs-pdf/f4562.pdf" target="_blank" rel="noreferrer noopener">IRS Form 4562</a> reports the depreciation expense deducted on your tax return. Fill out Form 4562, Part I, to elect the Section 179 tax deduction. Complete each line to compute your business deduction. </p>



<p>Refer to the <a class="link" href="https://www.irs.gov/instructions/i4562" target="_blank" rel="noreferrer noopener">Form 4562 instructions</a> as you complete the form. </p>



<p>Need help? <a class="link" href="https://1800accountant.com/services/small-business-taxes">Consult tax professionals</a> who can guide you through Section 179 calculations and compliance.&nbsp;</p>



<h2 class="wp-block-heading">Impact of Section 179 on Business Planning</h2>



<p>The Section 179 tax deduction can be valuable when planning business purchases.&nbsp;</p>



<p>If your business is preparing for large equipment purchases, you might wish to delay some purchases until the following tax year. You may be able to ensure greater deductions by keeping your purchases below the phase-out threshold each year.&nbsp;</p>



<p>Additionally, the Section 179 deduction might not benefit a taxpayer with a low business income limitation. The taxpayer could forego the Section 179 deduction and instead follow traditional depreciation rules.&nbsp;</p>



<p>Is your business planning an acquisition or large property purchases? Review our <a class="link" href="https://1800accountant.com/blog/small-business-tax-deductions-checklist">tax deduction checklist</a> and <a class="link" href="https://1800accountant.com/services/small-business-taxes">consult with professionals</a> to maximize your Section 179 deduction.&nbsp;</p>



<h2 class="wp-block-heading">Partner with Business Tax Professionals</h2>



<p>Want to take advantage of the Section 179 tax deduction?&nbsp;</p>



<p>Follow the steps in this article as you calculate your deduction and complete your tax return. <a class="link" href="https://1800accountant.com/services/small-business-taxes">Don’t forget to consult small business tax professionals with questions about tricky rules</a>.&nbsp;</p>



<p>Partner with 1-800Accountant tax professionals, who can help you understand how the rules apply to your business. You shouldn’t have to work through the Section 179 nuances alone.&nbsp;</p>



<p>1-800Accountant can help you calculate depreciation and maximize your deductions.&nbsp;</p>

Taxes can be a headache, especially when you’re unsure of the technical rules.&nbsp; Section 179 allows taxpayers to take an immediate tax deduction for property placed in service during the year instead of deducting the cost over several years.&nbsp; This article will explain the Section 179 rules and help you understand how to take advantage [&hellip;]

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Section 179: Everything You Need to Know

<p>Independent contractors, freelancers, sole proprietors, self-employed individuals, and gig workers.</p>



<p>No matter what you call it, earning an income from something other than a full-time job is booming in the United States. According to <a class="link" href="https://www.statista.com/statistics/921593/gig-economy-number-of-freelancers-us/" target="_blank" rel="noreferrer noopener">statistia.com</a>, 73.3 million Americans call themselves freelancers, up from 57.3 million in 2017.</p>



<p>While freelancing offers significant benefits not available for full-time employees, such as&nbsp; greater schedule flexibility, working for yourself also comes with new responsibilities. One of the most eye-opening responsibilities for new (and current) freelancers is being completely responsible for your tax situation.</p>



<p>The first place you should start when trying to understand taxes for independent contractors, freelancers, and gig workers is learning about the tax forms you'll need, including Internal Revenue Service (IRS) Form 1099-NEC.</p>



<h2 class="wp-block-heading">What is a 1099-NEC Form?</h2>



<p>If you work as a contractor or freelancer, you’ll likely receive a 1099-NEC form come tax time. This 1099-NEC form shows the total amount of money you received from this business in the 2023 tax year.</p>



<p>Form 1099-NEC is one of three different types of 1099 tax forms you’re likely to see as a contractor or freelancer:</p>



<ul>
<li><strong>IRS Form 1099-NEC</strong></li>
</ul>



<p>NEC is an acronym for “nonemployee compensation,” which is exactly what it sounds like. If you receive more than $600 in compensation from a business but aren’t an employee, you’ll receive a 1099-NEC showing how much you made during that calendar year.</p>



<ul>
<li><strong>IRS Form 1099-MISC</strong></li>
</ul>



<p>MISC stands for “miscellaneous.” Think of a <a class="link" href="https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/what-is-the-irs-form-1099-nec-and-form-1099-misc.aspx" target="_blank" rel="noreferrer noopener">1099-MISC</a> as a hodgepodge of all the other types of income you could receive from a business or an organization: rental income, prizes or awards, medical or health care payments, crop insurance proceeds, and certain legal proceeds such as settlements are all reported on a 1099-MISC. If you receive over $600 in any of these miscellaneous categories, you should receive a 1099-MISC.</p>



<ul>
<li><strong>IRS Form 1099-K</strong></li>
</ul>



<p>A 1099-K shows the payments you receive from third-party payment platforms such as PayPal, Venmo, and credit card companies. Prior to 2023, you would only receive a 1099-K if you were paid more than $20,000 AND had a total of 200 or more transactions from one of the payment processors. Starting this year, this $20,000 threshold has been lowered to $600, while the transaction requirement has been eliminated. So, if you accept any form of electronic payment, there’s a good chance you’ll receive at least one 1099-K when it comes time to file your return for the 2023 tax year.</p>



<p><em>A reminder about the $600 threshold:</em> Just because you don’t receive a Form 1099-NEC doesn’t mean you don’t have to include this income on your federal income tax return! Blank forms may be found on the IRS website.</p>



<p>You’re required to report ALL income you receive, from whatever source derived, on your tax return.</p>



<h2 class="wp-block-heading">1099-NEC form: Background</h2>



<p>As mentioned in this article’s introduction, you’re now responsible for your entire tax universe as a freelancer, Form 1099-NEC included. But what does this exactly mean?</p>



<p>To answer this question, let’s start by reviewing the tax situation for a full-time or part-time employee, and <a class="link" href="https://1800accountant.com/blog/1099-vs-w2">then we’ll compare it to the tax situation for a freelancer</a>.</p>



<h3 class="wp-block-heading"><strong>Tax Situation for an Employee</strong></h3>



<p>An employee never has to make a payment to the IRS to pay taxes.</p>



<p>Each time an employee receives a paycheck, the employer withholds a certain amount of money representing the income tax, Social Security tax, Medicare tax, and state &amp; local taxes (if applicable) for that employee.</p>



<p>Having withheld the employee’s taxes from their paycheck, the employer - not the employee - sends this money to the IRS on behalf of the employee.</p>



<h3 class="wp-block-heading"><strong>Filing a tax return for an employee</strong></h3>



<p>Every January, an employee receives a Form W-2 from their employer showing the total amount of all the paychecks received during the previous year. The employee fills out their tax return using information from their Form W-2 and other tax documents.</p>



<p>After filing their tax return, an employee - in theory - shouldn’t owe the IRS any additional money, nor should they receive a refund. The amount of money withheld from the employee’s paycheck should be equal - or pretty close - to the actual amount of taxes owed for that year.</p>



<p>Now, let’s compare what an employee goes through with their taxes to what a freelancer must deal with.</p>



<h2 class="wp-block-heading">1099-NEC form: Tax Situation for a Freelancer</h2>



<p>There are many moving parts to a freelancer’s tax situation. Here are the most important areas you should know about:</p>



<h3 class="wp-block-heading"><strong>Estimated tax payments</strong></h3>



<p>A freelancer must calculate the estimated tax owed to the IRS four times per year. The filing deadline may vary from year to year. Here are the due dates for these estimated tax payments:</p>



<ul>
<li><strong>April 15 -</strong> Due date to pay taxes on taxable income earned in January, February and March</li>



<li><strong>June 15 -</strong> Payment due date for April and May estimated taxes</li>



<li><strong>September 15 -</strong> Payment due date for June, July, and August estimated taxes</li>



<li><strong>January 15 -</strong> Payment due date for September, October, November, and December estimated taxes</li>



<li><strong><em>NOTE:</em></strong><em> If a due date falls on a weekend or a holiday, your payment is considered on time if it is made no later than the next business day.</em></li>
</ul>



<h3 class="wp-block-heading"><strong>Common types of taxes paid</strong></h3>



<p>The estimated tax payments a freelance taxpayer must make cover four main types of taxes:</p>



<ul>
<li><strong>Income tax.</strong> An income tax of up to 37% is due on your taxable profit.</li>



<li><strong>Social Security tax.</strong> A tax of 12.4% is due on your first $160,200 of taxable profit in 2023.</li>



<li><strong>Medicare tax.</strong> A tax of 2.9% is due on all your taxable profits.</li>



<li><strong>State and local taxes.</strong> Don’t forget about state and local taxes, if applicable. Many states follow the federal estimated tax payment due dates, but do double-check to confirm your specific payment deadlines.</li>
</ul>



<h3 class="wp-block-heading"><strong>Other types of taxes</strong></h3>



<p>If your income is high enough, you’ll owe an additional 0.9% Medicare surtax and a 3.8% tax on certain investment income. If you sell an asset at a gain, you’ll owe a capital gains tax of up to 25%.<br><br>Payments may be made in person, by mail, or electronically.</p>



<h2 class="wp-block-heading">How a freelancer can stay out of tax trouble</h2>



<p>With so many types of taxes and deadlines to meet, <a class="link" href="https://1800accountant.com/blog/5-tax-issues-that-cause-irs-trouble-for-1099-workers">it may seem a bit overwhelming</a> to understand your responsibilities as a taxpayer. If you follow these 3 tips, though, you’ll be in great shape.</p>



<ol>
<li><strong>Set aside money every week to pay taxes.</strong> Hopefully, you budget for everything else you spend on…taxes should be no different. Consider setting aside a flat percentage of every payment you receive, for example, 20% or 30%, to cover all the taxes you must pay.</li>



<li><strong>Know your deadlines.</strong> Now that you’re setting aside money on a regular basis to pay your taxes, make sure you don’t miss the payment deadlines. Consider putting your tax payment due dates on your calendar for the next 12 months. If you’re late with a payment, you may be required to pay penalties and interest in addition to the tax you owe.</li>



<li><strong>Ask for help.</strong> Remember that you’re never alone if keeping up with your taxes starts to become overwhelming. Asking for help is just an email or phone call away.</li>
</ol>



<h2 class="wp-block-heading">Work With the Small Business CPA Experts to File Form 1099-NEC</h2>



<p>Whether you need to fill out and file Form 1099-NEC, file taxes, obtain an EIN (your business's taxpayer identification number), or prepare a tax return, the CPA experts at 1-800Accountant, America's leading virtual accounting firm for small businesses, can help.<br><br>We offer services with affordable pricing for most independent contractors, freelancers, and all other types of gig and self-employed workers. Schedule a short consultation to learn how we can help with your accounting and tax needs so you can focus on your work!</p>

Independent contractors, freelancers, sole proprietors, self-employed individuals, and gig workers. No matter what you call it, earning an income from something other than a full-time job is booming in the United States. According to statistia.com, 73.3 million Americans call themselves freelancers, up from 57.3 million in 2017. While freelancing offers significant benefits not available for [&hellip;]

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Freelancing and Form 1099-NEC: Everything You Need to Know

<p>When you’re ready to incorporate your small business, you’ll need to choose whether to form an S corp or a C corp.&nbsp;</p><p>Is S corporation or C corporation the best business structure for your company? Each <a class="link" href="https://1800accountant.com/blog/6-tricks-to-choosing-the-best-entity-for-your-small-business">entity type</a> has unique benefits, and the S corp vs. C corp decision can have complex implications. We’ll help you understand each structure’s characteristics.&nbsp;&nbsp;</p><p>This article will compare the S corp vs. C corp business structures. You’ll learn the key differences and implications of choosing the best entity type for your business.&nbsp;</p><h2 class="wp-block-heading">Understanding Corporate Structures</h2><p>Before learning the differences between S corp and C corp, you should understand the basics of the <a class="link" href="https://1800accountant.com/blog/what-is-a-c-corporation" target="_self">corporate structure</a>.&nbsp;</p><p>A corporation is a legal entity separate from its business owners, also known as shareholders.&nbsp;</p><p>One significant benefit of the corporate structure? Corporations offer limited liability protection, which means shareholders cannot be held responsible for corporate debts or liabilities. Business owners gain protection from corporate claims.&nbsp;</p><p>To form a corporation, the business owner must file articles of incorporation with the secretary of state.&nbsp;</p><p>Incorporation documents establish a registered agent, adopt bylaws, and select the board of directors. After incorporation, the company should hold annual board meetings.</p><p>Every corporation must file annual reports and <a class="link" href="https://1800accountant.com/blog/corporate-tax-rates">tax returns</a> to maintain compliance.&nbsp;</p><h3 class="wp-block-heading">What Is an S Corp?&nbsp;</h3><p>The <a class="link" href="https://1800accountant.com/blog/business-entity-s-corp">S corporation structure</a> follows Internal Revenue Code Subchapter S rules. After incorporation, owners can elect S corp status by filing <a class="link" href="https://www.irs.gov/pub/irs-pdf/f2553.pdf" target="_blank" rel="noreferrer noopener">IRS Form 2553</a> (we’ll explain more about the election later).</p><p>S corporations are pass-through entities for income tax purposes, which means S corps do not pay corporate income tax on their earnings. S corps must distribute income and deductions to their shareholders annually.&nbsp;</p><p>Each shareholder receives a prorated distribution determined by their ownership percentage. Shareholders pay tax on their share of business income and deductions.&nbsp;</p><p>Business owners find the S corp business structure attractive because pass-through entities avoid double taxation.&nbsp;</p><p>However, S corps must follow specific eligibility rules or risk terminating their S corporation election. <a class="link" href="https://www.irs.gov/pub/irs-prior/p589--1995.pdf" target="_blank" rel="noreferrer noopener">S corp requirements</a> include the following:&nbsp;</p><ul><li>S corps cannot have more than 100 shareholders or more than one class of stock.</li><li>Shareholders cannot be corporations, partnerships, or nonresident aliens.&nbsp;</li><li>S corps must generate less than 25% of their gross receipts from passive investment income.&nbsp;</li><li>S corporations must maintain records of each shareholder’s basis.&nbsp;</li></ul><p>S corp rules can be complex. We recommend <a class="link" href="https://1800accountant.com/services/entity-formation">consulting with accounting professionals</a> who specialize in entity formations.</p><h3 class="wp-block-heading">What Is a C Corp?</h3><p><a class="link" href="https://1800accountant.com/blog/form-c-corp">C corporations</a> follow Subchapter C of the Internal Revenue Code. All newly incorporated businesses default to the C corp structure.&nbsp;</p><p>C corporations can raise capital by adding unlimited shareholders, who contribute cash in exchange for business ownership. Shareholders can include individuals, partnerships, corporations, or other entities. Additionally, C Corps can issue multiple classes of stock.&nbsp;</p><p>C corps aren’t required to distribute earnings to shareholders, so C corp business owners aren’t guaranteed annual dividends. C corps may choose to reinvest earnings and fund business growth.</p><p>The major downside to the C corp structure? Double taxation.&nbsp;</p><p>Double taxation means the C corporation and its shareholders pay tax on the business’s income. First, the C corp pays tax on its net income. Second, the C corp’s shareholders pay tax on corporate dividends.&nbsp;</p><p>Regardless, many business owners find that the benefits of the C corp’s flexibility outweigh the cost of double taxation.</p><p>Need help determining whether the C corp business structure is right for your business? Our <a class="link" href="https://1800accountant.com/services/entity-formation">entity formation professionals</a> can support you.&nbsp;</p><h2 class="wp-block-heading">S Corp vs. C Corp: The Key Differences</h2><p>As we’ve covered, S corporations and C corporations share many characteristics. The following table summarizes the key differences between S corp and C corp structures.&nbsp;</p><figure><table><tbody><tr><td><strong>S Corporation vs. C Corporation</strong><strong> Differences</strong></td><td><strong>S Corporation</strong></td><td><strong>C Corporation</strong></td></tr><tr><td><strong>Formation</strong></td><td>File articles of incorporation with the secretary of state.&nbsp;File IRS Form 2553 to elect S corp status.</td><td>File articles of incorporation with the secretary of state.</td></tr><tr><td><strong>Federal Tax Treatment</strong></td><td>S corps avoid double taxation.&nbsp;</td><td>C corps are subject to double taxation.&nbsp;</td></tr><tr><td><strong>State Tax Treatment</strong></td><td>S corp treatment varies by state.</td><td>C corps file state income tax returns.</td></tr><tr><td><strong>Federal Income Tax Form</strong></td><td>IRS Form 1120S</td><td>IRS Form 1120</td></tr><tr><td><strong>Ownership</strong></td><td>Shareholders can include individuals, trusts, and estates.&nbsp;Shareholders cannot include corporations, partnerships, or nonresident aliens.</td><td>C corp shareholders can include any individual or entity type.</td></tr><tr><td><strong>Shareholder Restrictions</strong></td><td>S corps cannot have more than 100 shareholders.S corps cannot issue more than one class of stock.&nbsp;</td><td>C corps can have unlimited shareholders and multiple classes of stock.&nbsp;</td></tr><tr><td><strong>Profit Distribution</strong></td><td>S Corps must distribute income and deductions to each shareholder annually.&nbsp;</td><td>C corps may distribute dividends to shareholders and/or reinvest corporate earnings.</td></tr></tbody></table></figure><h2 class="wp-block-heading">Tax Implications of Choosing S Corp vs. C Corp</h2><p>Let’s consider a (simplified) example illustrating S corporation vs. C corporation tax impacts.&nbsp;</p><p>Compare two corporations: QRS Company is an S corp, and ABC Company is a C corp. The companies share the following facts:&nbsp;</p><ul><li>Each corporation has two owners, and each owner holds 50% ownership.<br /></li><li>During 2023, the corporations each earned $1,000,000 and reported taxable income of $500,000.<br /></li><li>Each shareholder was subject to a combined federal and state income tax rate of 40% on corporate distributions.&nbsp;</li></ul><h3 class="wp-block-heading">S Corp Tax Implications Example</h3><p>QRS Company met all S corp requirements and did not pay federal or state income tax.&nbsp;</p><p>QRS Company distributed all profits to its shareholders, so each owner received $250,000. Each owner paid taxes of $100,000 on their distributions.</p><p>The shareholders each kept $150,000 after taxes.&nbsp;</p><h3 class="wp-block-heading">C Corp Tax Implications Example&nbsp;</h3><p>ABC Company paid $105,000 of federal income tax at a <a class="link" href="https://1800accountant.com/blog/corporate-tax-rates">21% tax rate</a>. Assuming a 7% state income tax rate, ABC Company paid $35,000 of state income tax.&nbsp;</p><p>The company distributed its after-tax income of $360,000 as dividends, so each shareholder received $180,000. Each owner paid $72,000 of taxes on dividends.&nbsp;&nbsp;</p><p>The shareholders each kept $60,000 after taxes.&nbsp;</p><h3 class="wp-block-heading">S Corp vs. C Corp: Summary of Tax Implications&nbsp;</h3><p>The following table compares the above example’s S corp vs. C corp tax implications.&nbsp;</p><figure><table><tbody><tr><td><strong>Corporate Tax Implications</strong></td><td><strong>S Corp</strong></td><td><strong>C Corp</strong></td></tr><tr><td>Taxable income</td><td>$500,000</td><td>$500,000</td></tr><tr><td>Federal income tax&nbsp;</td><td>$0</td><td>$105,000</td></tr><tr><td>State income tax&nbsp;</td><td>$0</td><td>$35,000</td></tr><tr><td>Dividend distributions (total)</td><td>$500,000</td><td>$360,000</td></tr><tr><td></td><td></td><td></td></tr><tr><td><strong>Shareholder Tax Implications (per owner)</strong></td><td><strong>S Corp</strong></td><td><strong>C Corp</strong></td></tr><tr><td>Distributions to each owner</td><td>$250,000</td><td>$180,000</td></tr><tr><td>Federal and state income taxes (40% total)</td><td>$100,000</td><td>$72,000</td></tr><tr><td>After-tax income</td><td>$150,000</td><td>$108,000</td></tr><tr><td></td><td></td><td></td></tr><tr><td><strong>Total Taxes Paid</strong></td><td><strong>S Corp</strong></td><td><strong>C Corp</strong></td></tr><tr><td>Corporate taxes paid</td><td>$0</td><td>$140,000</td></tr><tr><td>Shareholder taxes paid (total for two owners)</td><td>$200,000</td><td>$144,000</td></tr><tr><td>Total taxes paid</td><td>$200,000</td><td>$284,000</td></tr></tbody></table></figure><p>As you can see, the S corp and its shareholders enjoyed a lower total tax bill because S corps aren’t subject to double taxation. Further, the S corp shareholders kept more after-tax income than the C corp shareholders.&nbsp;</p><p>The above example illustrates potential tax implications with a simplified fact pattern, but your S corporation vs. C corporation decision should include non-tax considerations.&nbsp;</p><p>If you’re interested in S corp status for your company, we recommend <a class="link" href="https://1800accountant.com/services/small-business-taxes">consulting tax professionals</a> who can help you consider the economic and administrative impacts.</p><h2 class="wp-block-heading">How to Change from C Corp to S Corp (Or vice Versa)</h2><h3 class="wp-block-heading">Filing an S Corp Election</h3><p>As we mentioned, C corp status is the default for new corporations. You can make an S corp election by filing <a class="link" href="https://www.irs.gov/pub/irs-pdf/f2553.pdf" target="_blank" rel="noreferrer noopener">IRS Form 2553</a>, Election by a Small Business Corporation.&nbsp;</p><p>Before you file, confirm your business meets the S corp requirements and prepare to provide information about each shareholder.&nbsp;</p><p>Review the <a class="link" href="https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations" target="_blank" rel="noreferrer noopener">S corporation eligibility criteria</a> and consult your tax professional if needed.&nbsp;</p><p>After you receive the IRS’s approval, you may need to notify state and local taxing agencies of your S corp status. We can help you determine which <a class="link" href="https://1800accountant.com/services/small-business-taxes">notifications and disclosures</a> you should file.&nbsp;</p><h3 class="wp-block-heading">Terminating an S Corp Election</h3><p>If you wish to end your S corp status and revert to a C corp, you can file a <a class="link" href="https://www.irs.gov/forms-pubs/revoking-a-subchapter-s-election" target="_blank" rel="noreferrer noopener">statement of revocation</a> with the IRS.</p><p>The statement should include your company’s information, shareholder details, and shareholder signatures. Be sure to review the full requirements and due dates before filing.&nbsp;</p><h2 class="wp-block-heading">Partner with Experts Who Understand What’s Best for Your Specific Situation</h2><p>How do you know whether the S corp vs. C corp business structure is best for your company?&nbsp;</p><p>Ultimately, your decision requires weighing each entity type’s benefits and drawbacks.&nbsp;</p><p>Consider your company’s plans for raising capital and your shareholders’ tolerance for double taxation. Think through the requirements of each corporate structure – do you have the bandwidth to maintain compliance?</p><p>Partner with 1-800Accountant for your <a class="link" href="https://1800accountant.com/services/entity-formation">business structure decision</a>. Our tax professionals can help you understand the complex implications for your business. We’ll support your entity formation and assist with your <a class="link" href="https://1800accountant.com/services/small-business-taxes">business compliance</a>.&nbsp;</p>

When you’re ready to incorporate your small business, you’ll need to choose whether to form an S corp or a C corp.&nbsp; Is S corporation or C corporation the best business structure for your company? Each entity type has unique benefits, and the S corp vs. C corp decision can have complex implications. We’ll help [&hellip;]

s-corp-vs-c-corp_blog-header

S Corp vs. C Corp: Key Differences and How to Choose the Best Structure

<p>You’re finally ready to dive into your passion and create an organization for your cause.&nbsp;</p><p>Do you dream of supporting an underrepresented group, improving social welfare, or starting a sports club? After you decide on a goal, you should determine whether a non-profit or a not-for-profit organization is best for your mission.&nbsp;</p><p>You may wonder: What is the difference between non-profit vs. not-for-profit? This article will compare the two organization types. You’ll learn the key considerations and how to choose the organization type for your cause.</p><h2>Understanding Non-Profit Organizations</h2><h3>What Is a Non-Profit?&nbsp;</h3><p>A <a class="link" href="https://1800accountant.com/blog/non-profit-business-entities" target="_self">non-profit organization</a> is a business established for a specific public benefit.&nbsp;</p><p>Your non-profit’s purpose could be <a class="link" href="https://1800accountant.com/blog/4-types-of-non-profit-organizations">charitable, religious, or educational</a>. For example, many hospitals, churches, and public universities are non-profit organizations.&nbsp;</p><p>Despite its name, a non-profit organization may generate profits.&nbsp;</p><p>However, the entity’s earnings must funnel back to the non-profit to support its business activities. Non-profit organizations may not distribute profits to their members, directors, or officers.&nbsp;</p><p>The non-profit supports a social cause, so donations and business receipts should benefit the cause.</p><p>1-800Accountant can help you <a class="link" href="https://1800accountant.com/services/entity-formation">determine whether your organization is eligible</a> for non-profit status.&nbsp;</p><h3>Benefits of Non-Profit Organizations</h3><h4>Tax-Exempt Status</h4><p>Non-profit organizations enjoy several tax benefits.&nbsp;</p><p>Non-profits often qualify for <a class="link" href="https://www.irs.gov/charities-non-profits/applying-for-tax-exempt-status" target="_blank" rel="noreferrer noopener">exemption from federal income tax</a>, known as 501(c)(3) status. Non-profit organizations may also gain exemption from state and local taxes such as income, sales, and property tax. (If your non-profit hires employees, your organization is still responsible for payroll taxes.)</p><p>Further, donors can take tax deductions for charitable contributions to 501(c)(3) non-profit organizations. The IRS incentivizes donations to social causes by allowing tax benefits for people who support your mission.&nbsp;</p><p>To obtain 501(c)(3) status, the organization must form a legal entity separate from its owners. Eligible entity types include corporations, trusts, or associations.&nbsp;</p><p>Before applying for tax-exempt status, review the <a class="link" href="https://www.irs.gov/charities-non-profits/before-applying-for-tax-exempt-status" target="_blank" rel="noreferrer noopener">IRS application process</a> and <a class="link" href="https://www.irs.gov/pub/irs-pdf/p557.pdf" target="_blank" rel="noreferrer noopener">filing requirements</a>.&nbsp;</p><p>You can check your organization’s eligibility with the <a class="link" href="https://www.irs.gov/charities-non-profits/application-process" target="_blank" rel="noreferrer noopener">IRS tax-exemption eligibility questions</a>. The IRS also provides links to <a class="link" href="https://www.irs.gov/charities-non-profits/state-links" target="_blank" rel="noreferrer noopener">state websites containing resources</a> for tax-exempt organizations.&nbsp;</p><p>We know the terminology can get confusing. <a class="link" href="https://1800accountant.com/services/entity-formation">Let us support you</a> through your application process.&nbsp;</p><h4>Eligibility for Public and Private Grants</h4><p>Many public and private programs set aside annual funding to support charitable causes. Your non-profit can apply for grants to support your organizational purpose.&nbsp;</p><p>Many <a class="link" href="https://www.grants.gov/web/grants/learn-grants/grant-making-agencies.html" target="_blank" rel="noreferrer noopener">federal agencies</a> award grants to non-profit organizations. Eligible causes include educational access and heritage protection. You can <a class="link" href="https://www.grants.gov/web/grants/search-grants.html" target="_blank" rel="noreferrer noopener">search for available grants</a> and review the eligibility requirements.</p><h4>Lower Postal Rates</h4><p>Non-profit organizations may qualify for reduced postage prices from the US Postal Service. Educational, religious, and other organizations can <a class="link" href="https://faq.usps.com/s/article/What-is-Nonprofit-Mail" target="_blank" rel="noreferrer noopener">apply for non-profit postage rates</a>.&nbsp;</p><h4>Limited Liability Protection</h4><p>As mentioned, non-profits must organize as corporations, trusts, or associations. Each entity type is legally separate from its owners. Non-profit owners gain limited liability protection from potential claims against the organization.&nbsp;</p><h3>Disadvantages of Non-Profit Organizations</h3><h4>Public Scrutiny</h4><p>Non-profits must publicize their annual income statements and balance sheets.&nbsp;</p><p>Organizations can face scrutiny over amounts spent on salaries or administrative costs. The public could question how the spending directly supports the non-profit’s mission.&nbsp;&nbsp;</p><h4>Restrictions on Political Activities</h4><p>Non-profits can maintain social stances but cannot participate in certain political activities.&nbsp;</p><p>For example, non-profit organizations <a class="link" href="https://www.irs.gov/charities-non-profits/charitable-organizations/the-restriction-of-political-campaign-intervention-by-section-501c3-tax-exempt-organizations" target="_blank" rel="noreferrer noopener">cannot publicly support or oppose political candidates</a>. Non-profits must not donate to political parties or campaigns.&nbsp;&nbsp;&nbsp;</p><h4>Compliance Requirements</h4><p><a class="link" href="https://1800accountant.com/blog/nonprofit-taxes">Non-profit organizations must comply</a> with IRS annual reporting requirements. State and local authorities may impose additional compliance rules.&nbsp;</p><p>The <a class="link" href="https://www.irs.gov/charities-non-profits/annual-filing-and-forms" target="_blank" rel="noreferrer noopener">IRS requires the following</a> annual filings:</p><ul><li><strong>Form 990 Series informational returns</strong>, which include the organization’s annual financial statements.</li><li><strong>Employment tax forms</strong> report employment taxes for organizations with employees.</li><li><strong>Unrelated business income tax forms</strong> report revenue from activities unrelated to the non-profit purpose.&nbsp;</li></ul><p>Review your state and local tax authority websites for additional reporting requirements. We can help you <a class="link" href="https://1800accountant.com/services/small-business-taxes">maintain non-profit compliance</a>.</p><h3>Examples of Non-Profit Organizations</h3><p>Non-profit organizations may include churches, public schools, hospitals, research organizations, and museums.&nbsp;</p><p>You may be familiar with some of the following non-profit organizations:</p><ul><li>American Heart Association</li><li>American Red Cross</li><li>ASPCA</li><li>Goodwill Industries</li><li>Habitat for Humanity</li><li>United Way</li></ul><h2>Understanding Not-for-Profit Organizations</h2><h3>What Is a Not-for-Profit?&nbsp;</h3><p>A not-for-profit organization is a group that supports a specific mission.</p><p>Not-for-profit organizations aren’t required to benefit the public. For example, not-for-profits can include sports clubs, business affiliations, and social organizations.&nbsp;</p><p>Like non-profit organizations, not-for-profit organizations must not distribute profits to members, owners, or directors. Earnings must further the not-for-profit’s purpose.&nbsp;</p><h3>Benefits of Not-for-Profit Organizations</h3><h4>Flexibility in Organizational Goals</h4><p>Your not-for-profit organization can choose one of many activities to support, including recreation, business, and other community-based interests. The not-for-profit owners can choose a goal that aligns with their interests.&nbsp;</p><h4>Tax Advantages</h4><p>Like non-profits, not-for-profit organizations may be eligible for exemption from federal income tax.&nbsp;</p><p>Your not-for-profit may not be eligible for 501(c)(3) status, but the IRS provides income tax exemptions for <a class="link" href="https://www.irs.gov/charities-non-profits/other-tax-exempt-organizations" target="_blank" rel="noreferrer noopener">numerous organizations</a>. For example, certain business leagues may qualify for federal income tax exemption under Internal Revenue Code Section 501(c)(7).&nbsp;</p><p>We recommend reviewing the <a class="link" href="https://www.irs.gov/charities-non-profits/other-non-profits/requirements-for-exemption" target="_blank" rel="noreferrer noopener">list of requirements for tax exemption</a> to understand whether your not-for-profit should apply.&nbsp;</p><p>Consult <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business professionals</a> who can walk you through the rules.&nbsp;</p><h4>Access to Grants and Other Funding Sources</h4><p>Not-for-profit organizations have many of the same funding opportunities as non-profit organizations.&nbsp;</p><p>Depending on your not-for-profit’s mission, your organization can apply for public and private grants to help keep the business running. Welfare organizations often qualify for more opportunities than social clubs and sports leagues.&nbsp;</p><h3>Disadvantages of Not-for-Profit Organizations</h3><h4>Public Scrutiny</h4><p>Like non-profits, not-for-profits can face public scrutiny over spending decisions. The public could question whether spending supports the not-for-profit’s goals.</p><h4>Limited Tax Deductibility for Donors</h4><p>Donors can only take tax deductions for charitable contributions to 501(c)(3) tax-exempt organizations. If your not-for-profit does not qualify for 501(c)(3) status, your donors cannot deduct their contributions to your organization.&nbsp;</p><p>For example, local employee associations may qualify for tax-exempt status under 501(c)(4) but could not offer tax deductibility for donors.&nbsp;</p><p>You can <a class="link" href="https://www.irs.gov/charities-non-profits/common-tax-law-restrictions-on-activities-of-exempt-organizations" target="_blank" rel="noreferrer noopener">review the restrictions on tax-exempt organizations</a> to understand the rules that apply to your not-for-profit.&nbsp;</p><h4>Compliance Requirements</h4><p>Like non-profit organizations, not-for-profits must file annual financial statements and informational returns.&nbsp;</p><p>Tax-exempt organizations should follow the <a class="link" href="https://www.irs.gov/charities-non-profits/annual-filing-and-forms" target="_blank" rel="noreferrer noopener">IRS annual reporting requirements</a> or risk losing tax advantages. Your not-for-profit should follow federal, state, and local compliance requirements.&nbsp;</p><p><a class="link" href="https://1800accountant.com/services/small-business-taxes">Consult with a tax professional</a> to understand which forms to submit.&nbsp;</p><h3>Examples of Not-for-Profit Organizations</h3><p>Not-for-profit organizations may include athletic leagues, business affiliations, and social welfare organizations.&nbsp;</p><p>The following not-for-profit examples illustrate a range of organizational purposes:&nbsp;</p><ul><li>American Federation of Teachers</li><li>American Legion</li><li>Greater Rochester Chamber of Commerce</li><li>Jules Weber Foundation</li><li>Laborers' International Union of North America</li><li>Noyac Golf Club</li></ul><h2>Non-Profit vs. Not-for-Profit Organizations: Key Similarities and Differences</h2><h3>Key Similarities</h3><p>Non-profit organizations and not-for-profit organizations share several characteristics.</p><p>Similarities between non-profit vs. not-for-profit include the following:&nbsp;</p><ul><li><strong>Use of profits</strong>: Both non-profit and not-for-profit organizations must not distribute profits to owners, members, or directors.</li><li><strong>Public scrutiny</strong>: Both organizations face potential financial scrutiny and should ensure spending aligns with their stated purpose.</li><li><strong>Eligibility for private and public funding</strong>: Non-profit and not-for-profit organizations can apply for grants and private funding.</li><li><strong>Stringent compliance requirements</strong>: Tax-exempt organizations must file annual informational returns and comply with compliance requirements.&nbsp;</li></ul><h3>Key Differences&nbsp;</h3><p>What are the differences between non-profits and not-for-profits? The following characteristics differ between non-profit vs. not-for-profit:&nbsp;</p><ul><li><strong>Organizational goals</strong>: While non-profit organizations must support the public benefit, not-for-profit organizations may exist to further their owners’ interests.</li><li><strong>Deductibility of charitable contributions:</strong> Donations to non-profit organizations are generally tax-deductible for the donor, but not all contributions to not-for-profit organizations qualify for deductibility.</li><li><strong>Tax-exempt status</strong>: 501(c)(3) tax-exempt status applies to specific activities, and many not-for-profit organizations cannot qualify for the same tax advantages that non-profits can obtain.&nbsp;</li></ul><h2>How to Choose: Non-Profit vs. Not-for-Profit</h2><p>Now you know the key characteristics of non-profits vs. not-for-profits. How do you choose the best organization type?</p><p>Consider your goals and imagine your mission’s beneficiaries. For example, think through the following key considerations:&nbsp;</p><ul><li><strong>Organizational purpose</strong>: Non-profit organizations must benefit the public, while not-for-profit organizations can align with owners’ interests.</li><li><strong>Fundraising needs</strong>: Non-profit organizations can solicit donations by providing tax deductions for donors. In contrast, not-for-profit organizations might not secure large private donations.</li><li><strong>Compliance requirements</strong>: Non-profit organizations typically follow stricter reporting requirements than not-for-profits, depending on their tax-exempt status.&nbsp;</li></ul><p>Don’t hesitate to consult <a class="link" href="https://1800accountant.com/services/entity-formation">entity formation professionals</a> for help with your situation.&nbsp;</p><h2>Partner with Small Business Experts to Understand Non-Profits</h2><p>Now you understand the non-profit vs. not-for-profit differences, and you’re one step closer to choosing the best organization to support your cause.&nbsp;</p><p>As you navigate the complexities of your decision, consider your goals, beneficiaries, and fundraising needs. Be sure to seek guidance from legal and accounting experts.&nbsp;</p><p>1-800Accountant professionals can help you understand the entity formation intricacies. <a class="link" href="https://1800accountant.com/services/entity-formation">Consult entity formation experts</a> for support in pursuing your mission.</p>

You’re finally ready to dive into your passion and create an organization for your cause.&nbsp; Do you dream of supporting an underrepresented group, improving social welfare, or starting a sports club? After you decide on a goal, you should determine whether a non-profit or a not-for-profit organization is best for your mission.&nbsp; You may wonder: [&hellip;]

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Non-Profit vs. Not-for-Profit: Key Considerations and How to Choose the Best Organization Type

Owning and operating a small business can be a gratifying experience. You&#8217;re your own boss, and you call the shots! But you also take on numerous responsibilities, including the calculation and timely submission of small business quarterly taxes. This ongoing responsibility may seem intimidating, but once addressed, it will help support your business&#8217;s long-term tax [&hellip;]

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Why Small Businesses Should Pay Attention to Quarterly Tax Payments

<p>A non-profit's mission is to further a public good that benefits society. Investors and private citizens make charitable donations to fund non-profits not for a return on investment but for the benefits they hope to see provided to others in need. Running a non-profit is a noble venture, but it can be difficult, especially if you're new to the space.<br><br>Whether you're readying the launch of your non-profit or in the middle of discovery, use this blog to learn about various non-profit entities, the formation process, and the challenges these organizations face.&nbsp;</p>



<h2>What is a non-profit business entity?</h2>



<p>Non-profit business entities are organizations that do not operate for profit. Instead of focusing on producing profit for shareholders, the money earned by a non-profit is used for paying staff, supporting business operations, and promoting the public good. Broadly speaking, this is what qualifies as a non-profit.</p>



<p>Legal non-profit status makes those organizations tax-exempt. Social service agencies, churches, philanthropic foundations, public schools, charities, and museums illustrate the diversity of non-profits. While there are different categories of non-profits with specific restrictions, all non-profits must follow rigid rules governing their organization and management, which helps to ensure they're politically nonpartisan.&nbsp; &nbsp;<br></p>



<p>Non-profits enjoy a status that exempts them from federal income taxes and most state taxes. This also means most donations an individual or business makes to a non-profit can also be claimed as a deduction on their tax return.&nbsp;</p>



<p>Non-profits must prove they're worthy of public trust to qualify for tax-exempt status. They must file their taxes as a non-profit and submit annual informational returns about their finances.&nbsp;</p>



<h2>Different types of non-profit business entities</h2>



<p>There are <a class="link" href="https://1800accountant.com/blog/4-types-of-non-profit-organizations">many types of non-profit organizations</a>, with the most common non-profit business structure being a 501(c)(3), which includes most charitable organizations, foundations, and beneficiary organizations. Other common types of non-profits include:&nbsp;</p>



<ul>
<li>501(c)(1): Corporations organized by the federal government to serve a public purpose.&nbsp;</li>



<li>501(c)(4): Labor unions and other employee associations that promote employee welfare.</li>



<li>Beneficiary associations falling under 501(c)(11) or 501(c)(12).<br></li>
</ul>



<h2>The process of forming a non-profit organization</h2>



<p>Use this as your step-by-step <a class="link" href="https://1800accountant.com/blog/complete-guide-start-business">guide to starting a business</a> and applying for non-profit status.&nbsp;</p>



<h3><strong>1. Research Your Issue and the Needs of Your Area</strong></h3>



<p>What is the need you’re trying to address? Find out what the problem is and study the issue. What are the root causes? Are there other organizations in your area doing similar work? You want to understand the subject well enough to make a difference.</p>



<p>You also want to avoid duplicate efforts if someone else already meets your area's needs.&nbsp;</p>



<h3><strong>2. Develop a Business Plan</strong></h3>



<p>What will your non-profit do, and what will it be called? How exactly will you fulfill your purpose, and how will you raise funds?&nbsp;</p>



<p>Your business plan should reflect the wealth of research you’ve conducted. You want to show grant providers and investors that you have the passion and understanding to make good use of their funds to make a difference.&nbsp;</p>



<h3><strong>3. Recruit a Board of Directors</strong></h3>



<p>As a publicly-owned organization, your non-profit will need a volunteer board of directors to oversee management and help with long-term decisions and planning. The board should comprise people who care about the social issue and the non-profit’s mission. </p>



<p>Ideally, your board should include community leaders from the area and members of the organization’s affected target population.&nbsp;&nbsp;&nbsp;</p>



<h3><strong>4. File Articles of Incorporation</strong></h3>



<p>Now that you’ve drafted your initial plan, you can prepare and file your paperwork and begin operating.&nbsp;</p>



<p>You may need to file articles of incorporation and pay a paperwork fee in every state you plan to operate in. You’ll only need to file with one state for most non-profits concerned with a single area.&nbsp;</p>



<h3><strong>5. Request 501(c)(3) Status</strong></h3>



<p><a class="link" href="https://www.irs.gov/charities-non-profits/application-process">Follow the IRS 501(c)(3) non-profit application process</a> and apply with the accompanying fee. Without it, you won't be able to solicit donations or qualify for tax-exempt purchases.&nbsp;</p>



<h2>Funding for non-profits&nbsp;</h2>



<p>While numerous avenues exist to gain financial support, the two most common ways non-profits receive funding are through grants and charitable donations. Whichever you choose to pursue, there's a lot of work involved.<br><br>You'll have to research the various grants offered by governments, corporations, and foundations to identify those relevant to your non-profit. Grant applications often ask for a lot of information and may have requirements your non-profit has yet to meet.&nbsp;&nbsp;</p>



<p>Charitable donations can be secured in a variety of ways. You could approach members of your community individually who are aligned with your vision, throw a fundraising event, or network with relevant donor organizations.&nbsp;</p>



<p>Fundraising can be a full-time job and require someone extroverted to gain support, especially early on as your non-profit develops.</p>



<h2>Benefits of tax-exempt status</h2>



<p>The tax-exempt status of your non-profit is critical, and it can be a catastrophic blow if revoked. Without this status, your non-profit must pay taxes on donations, while donors can no longer write off contributions. Losing tax-exempt status will also close the door to future grants and donations.<br><br>Luckily, it isn't difficult to maintain non-profit, tax-exempt status when you adhere to the following:&nbsp;</p>



<ul>
<li>The non-profit must operate exclusively for <a class="link" href="https://www.irs.gov/charities-non-profits/charitable-organizations/exempt-purposes-internal-revenue-code-section-501c3">exempt purposes as described in the IRS code</a>. These can be charitable, religious, educational, scientific, literary, or other causes concerned with public safety.</li>



<li>Non-profits cannot advocate for or against specific political candidates.&nbsp;</li>



<li>Non-profits cannot contribute to political campaigns.</li>



<li>Non-profits cannot benefit from private interests, and private shareholders should collect no part of their earnings.&nbsp;&nbsp;</li>
</ul>



<h2>Challenges and considerations in running a non-profit organization</h2>



<p>There are numerous challenges facing non-profit companies, with staying organized and maintaining healthy funding levels being the most complex and persistent.<br><br>Thousands of non-profits are vying for grants and donor dollars, with more mature organizations hiring dedicated personnel to go after and secure funding. Due to the intense competition, your non-profit can do everything right and still walk away empty-handed. While there's no secret recipe to securing the funding your non-profit needs, being persistent and ensuring paperwork and other areas of scrutiny are engaging, and error-free helps.<br><br>Keeping your records organized and financial statements accurate is a difficult challenge for non-profits. Prospective donors, the public, and the media will scrutinize these materials, so your ducks must be in a row. A lack of organization is usually a sign of a troubled non-profit, which more experienced donors will notice immediately and avoid.&nbsp;&nbsp;</p>



<h2>Partner with non-profit accounting professionals</h2>



<p>Running a non-profit organization is a wonderful societal good and helps people who are in need. But you can't do it all on your own. Whether you need to know <a class="link" href="https://1800accountant.com/blog/how-to-incorporate-a-business">how to start a non-profit organization</a> or require help completing a <a class="link" href="https://1800accountant.com/blog/how-to-file-501a">501(c)(3) tax-exempt form</a>, the non-profit experts at 1-800Accountant, America's leading virtual accounting firm for small businesses, can help. <br><br>Whether it's <a class="link" href="https://1800accountant.com/services/industry/nonprofit">non-profit taxes</a>, <a class="link" href="https://1800accountant.com/services/business-tax-advisory">tax advisory</a>, or any of our professional accounting services, we have the affordable solution you need to help your <a class="link" href="https://1800accountant.com/blog/nonprofit-taxes">non-profit stay compliant</a>. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help. </p>

A non-profit&#8217;s mission is to further a public good that benefits society. Investors and private citizens make charitable donations to fund non-profits not for a return on investment but for the benefits they hope to see provided to others in need. Running a non-profit is a noble venture, but it can be difficult, especially if [&hellip;]

A presenter leading a workshop on non-profit business entities, using a whiteboard in a classroom setting surrounded by attentive listeners.

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Non-Profit Organizations Explained

<p>Shifting your small business from its current legal entity to a multi-member limited liability company, commonly called an LLC, can be a transformative step in your career. Forming a multi-member LLC is a popular choice among entrepreneurs due to numerous benefits, including flexibility, favorable corporate tax considerations, and liability protections.</p>



<p>But before you make the leap, you should know what you're jumping into. This blog details important aspects of running a multi-member LLC, its advantages, step-by-step formation guidance, tax filing requirements, and more.&nbsp;</p>



<h2>What is a multi-member LLC?</h2>



<p>A multi-member LLC is a business entity not usually embraced by first-time owners. To qualify as this entity, you must have at least two "members" or owners who must be 18 or older. Members of the LLC do not have to be US citizens to own this type of business.<br><br>While a single-member LLC or a sole proprietorship is preferred for businesses with a single owner, multi-member LLCs are advantageous for shared endeavors. This can include family businesses and businesses owned with a friend, partner, or married couple, among other scenarios. This provides business owners with personal asset protection for each member and pass-through taxation, allowing profits and losses to pass directly to each member's personal tax return.&nbsp;&nbsp;</p>



<h2>The benefits of a multi-member LLC</h2>



<p>There are numerous advantages to forming as a multi-member LLC, including the following:</p>



<ul>
<li><strong>Flexibility.</strong> Structure the business in a way that best suits your needs, including choosing who manages it.</li>



<li><strong>Liability.</strong> Personal assets remain separate from the business, insulating members from experiencing personal liability if business assets are at risk.</li>



<li><strong>Easy maintenance.</strong> Fewer documents are needed to start a multi-member LLC than other&nbsp; types of LLCs.</li>



<li><strong>Favorable taxation.</strong> Members can claim the losses on their personal tax returns when the business loses money, helping decrease what's owed to the IRS.&nbsp;</li>



<li><strong>Ownership.</strong> Allows for shared ownership, facilitating a wide range of ideas and resources.</li>



<li><strong>Profit and loss allocation.</strong> Members can agree to distribute the profits and losses in a manner that might not match ownership percentages.</li>



<li><strong>Credibility.</strong> A multiple-member LLC increases your business credibility with potential partners, lenders, and investors.</li>
</ul>



<h2>Steps to form a multi-member LLC</h2>



<h3>Choose a Name</h3>



<p>The first step in starting your multi-member LLC is to choose your business name. The name must include a variant of ‘limited liability company’ or ‘LLC’ and must be unique. Some states offer a name reservation service for a fee.&nbsp;</p>



<h3>Get an Employer Identification Number (EIN)</h3>



<p>All businesses need an EIN to operate. Without it, you cannot open a business bank account or hire employees. Easily apply for a free EIN through the IRS website, which you will receive immediately.&nbsp;</p>



<h3>Select a Registered Agent</h3>



<p>Another critical step is working with a registered agent. A registered agent is a designated person who will accept federal and state legal documents on behalf of your business. Your registered agent must live in the same state as the location of your business.</p>



<p>After working with a registered agent, the next step is to create and submit your Articles of Organization.&nbsp;</p>



<h3>Submit Articles of Organization</h3>



<p>After you choose a name, work with a registered agent, create your articles of organization, and have optionally prepared an LLC operating agreement, you’ll file with the state. The filing includes submitting the Articles of Organization, a legal document providing the state with information about your LLC.&nbsp;</p>



<p>In the Articles of Organization, you’ll provide your LLC’s address and name and the LLC’s registered agent. You’ll send this document to the Secretary of State. After you pay a filing fee, you’ll receive formal certification, which allows you to begin operations.&nbsp;</p>



<h2>Operating Agreement for Multi-Member LLCs</h2>



<p>A multi-member <a class="link" href="https://1800accountant.com/blog/operating-agreement">operating agreement</a> allows you to customize and establish the rules owners agree to follow. Submitting this agreement to your state isn't mandatory, but it is essential for your multi-member LLC and ownership.<br><br>Your operating agreement will contain pertinent information that will provide answers for:&nbsp;</p>



<ul>
<li>The distribution of losses and profits&nbsp;</li>



<li>The management structure&nbsp;&nbsp;</li>



<li>Meeting structure and voting power</li>



<li>The rights and responsibilities of each member&nbsp;</li>
</ul>



<p>Other topics the agreement might address include designating the member responsible for drafting an annual report and protocol for when new members are added and how it might impact ownership interest.</p>



<h2>Tax Considerations for Multi-Member LLCs</h2>



<p>Multi-member LLC owners enjoy limited liability protection via pass-through taxation, where profits and losses flow directly to their respective personal income tax returns. While pass-through taxation is a feature shared with other business entities, multi-member LLCs have unique tax responsibilities due to the nature of their structure.<br><br>Unlike sole proprietors or LLCs, multi-member LLCs are responsible for submitting a Schedule K-1 form to the IRS. Schedule K-1 is the form used to report each owner's share of earnings, losses, credits, and deductions. Once completed, submit to the IRS with any other required documentation.&nbsp;</p>



<h2>Management and Decision-Making in Multi-Member LLCs</h2>



<p>Deciding who should manage the business and selecting who has decision-making power should be detailed in your operating agreement. There are two viable options: member-managed LLC and manager-managed LLC.<br><br>The member-managed option is the most common and typically involves each owner contributing to the daily operation of the business. While the member-managed route is more common at first, some businesses will opt to hire employees to manage aspects of the business once it grows beyond the scope of ownership's capabilities.&nbsp;</p>



<p><br>The other less common option for multi-member LLCs is manager-managed. This involves hiring employees to manage the business and deciding on the level of authority they should be empowered with. This is an excellent selection if ownership doesn't intend to be involved on a daily basis or if the company is already too large, requiring more experienced management.&nbsp;</p>



<h2>Common issues faced by multi-member LLCs</h2>



<p>Keeping your multi-member LLC compliant is an ongoing issue ownership must address. Compliance issues touch many aspects of the business, and falling behind or failing to handle one may impact other areas, creating a domino effect.<br><br>Common issues ownership must address include:&nbsp;</p>



<ul>
<li><strong>Licenses and permits.</strong> You are not permitted to operate if your business licenses expire.&nbsp;</li>



<li><strong>Member meetings. </strong>Owners are typically required to schedule meetings and record meeting minutes.&nbsp;</li>



<li><strong>Taxes. </strong>How to file taxes for a multi-member LLC<strong> </strong>can be tricky, and you'll need a multi-member LLC tax form. If your federal tax return is not filed on time or is underpaid, it could invite penalties and fees. IRS issues may impact your ability to seek capital, causing additional problems. &nbsp;<br></li>
</ul>



<p>There might be a point where the common issues multi-member LLCs face become too unwieldy for ownership to handle. This is usually a sign that businesses need assistance from more specialized professionals.&nbsp;</p>



<h2>Partner with an Accounting Expert to Optimize Your Multi-Member LLC</h2>



<p>Whether it's formation difficulties, federal income tax compliance issues, problems obtaining permits, or other common challenges, running a multi-member LLC takes a lot of work. Tackling and addressing such unpleasantries can sometimes feel impossible, which is why so many multi-member LLCs trust 1-800Accountant, America's leading virtual accounting firm for small businesses, for their professional needs.  <br><br>Whether it's <a class="link" href="https://1800accountant.com/services/small-business-taxes">small business taxes</a>, <a class="link" href="https://1800accountant.com/services/entity-formation">entity formation</a>, obtaining an <a class="link" href="https://1800accountant.com/blog/ein">EIN</a> for multi-member LLCs, or any of our professional accounting services, we have the solution you need at a price that works for you. Schedule a quick consultation – usually 30 minutes or less – to learn how we can help. </p>

Shifting your small business from its current legal entity to a multi-member limited liability company, commonly called an LLC, can be a transformative step in your career. Forming a multi-member LLC is a popular choice among entrepreneurs due to numerous benefits, including flexibility, favorable corporate tax considerations, and liability protections. But before you make the [&hellip;]

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Everything You Need to Know About Multi-Member LLCs

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