Creating a New S Corporation

We hope you’ve realized the potential benefits of transitioning your small business to an S-Corp, but now you may be wondering, “How do I set up my small business to make the transition as seamless as possible?” and “When does it make sense to make the S-Corp election?”

You can always give us a call, but when you’re just getting started, follow these steps to organize the accounting and tax side of your small business, and then let our S-Corp accountants and bookkeepers do the heavy lifting and take over the complicated ongoing accounting and tax work with one of our plans.

New Small Business Tax Checklist

1. Register your business as an LLC on your state’s Secretary of State website.

This is typically a very easy process. Although it won’t have any tax impact right now, it’s good practice to reduce liability and set your business up for the S-Corp election. We’re in Colorado, and if you are too, this is where Colorado LLCs register. Otherwise, head over to your state’s Secretary of State website.

2. Decide if you want to register a DBA (Doing Business As Name). If so, you can generally do it on your state’s same Secretary of State website where you register your LLC.

Registering a DBA is typically not necessary since your business will already be a registered LLC and can do business using the LLC name, but it could be useful in cases where you would like a separation between two parts of the same business. For example, let’s say Sylvia is a graphic designer and copywriter, and she registers her LLC as “Design by Sylvia.” She may also want to register a DBA as “Copywriting by Sylvia” in order to separate her business to clients, while keeping both services under the same LLC umbrella.

3. Apply for an EIN (Employer Identification Number), which is essentially like a social security number for your business.

Although at this stage of your small business, you may not technically need an EIN yet, it will be needed before making the S-Corp election, and it can also be helpful for the next steps that we recommend. It’s extraordinarily simple. You can do it fully online at this IRS page and generally receive your fancy new EIN within minutes.

4. Set up a new business bank account that will only be used for the business.

Using your LLC articles of organization and EIN, you’ll want to open a business bank account in the name of the business and USE IT ONLY FOR BUSINESS.

5. Open a business credit card that will only be used for the business.

Of course, you can also just use the business bank account for purchases, but opening a business credit card can provide benefits such as rewards for business purchases, oftentimes better fraud protection, and an opportunity to start building your business’s credibility.

Pro Tip: You’ll likely need to use your SSN for approval of a business credit card, unless your small business has the financial history to be approved using your EIN. It’s totally fine to use a personal credit card rather than a business credit card, but the important thing is that it’s a brand new account that is only ever used for business-related purchases.

6. Set up your account on Quickbooks and start bookkeeping.

When you’re just starting out, you may want to use our Total Tax plan and do your own bookkeeping to save some cash. We do strongly recommend working with us or another CPA to set up your Quickbooks account with a good chart of accounts that will make both running your business and doing your taxes as easy as possible- even if you do it all yourself after the initial setup. Give us a call! We’re happy to set up the account for you, and we’ll be ready to take over the complicated stuff when the time comes.

7. Continue using your personal tax return to file until you’re ready to make the S-Corp election

As your business is getting going, you’ll continue to include business income and deductions on your personal return (ie 1040, Schedule C) when you file taxes.

8. Make the S-Corp election as soon as you think you’re going to have around 75k in profit for any given year.

Your business is off the ground, and now it’s time to start thinking about making the decision to be taxed as an S corporation. Why do we recommend reaching a 75k profit threshold first? Other than tax-savings benefits, the S-Corp election comes with other changes. The two biggest being the requirement to run payroll and pay yourself as an employee and having to file a tax return for the business that is separate from your personal return. For most small businesses, the administrative burden of this extra work isn’t worth it until they’re making between 75-100k in profit. When you’re ready or need advice, give our CPA firm a call.

9. Check Out Our Services for Small Businesses and S-Corps

There’s a lot that goes into starting a small business, and we understand from our experience, how overwhelming it may all seem upfront. That’s why our S-Corp accounting team is here to help other small businesses in every way we can.

Starting small and want to do most of the work yourself? Check out Total Tax.
Your brother is a CPA and has taxes covered, but your palms get sweaty at the thought of bookkeeping yourself? Check out Basic Bookkeeping.
Anticipating plenty of money and not enough time? Outsource everything with Integrated Accounting and Tax.
Need some assurance that you’re on the right track? Drop us a line.

In the meantime, feel free to use our fillable and printable simplified checklist, and mark off the list as you go.