A separate legal entity from its owners.
Corporate documents are filed with the state and an annual fee is paid.
Separate corporate bank accounts and records are created, and assets and money generated by the corporation are owned by the corporation.
Corporations are required to pay federal, state and, in some cases, local taxes.
Most businesses must register with the IRS and state and local revenue agencies. Although any business that has employees will need to get a tax ID number, it is required for a corporation.
Unlike sole proprietors and partnerships, corporations pay income tax on their profits. In some cases, corporations are taxed twice — first, when the company makes a profit, and again when dividends are paid to shareholders on their personal tax returns.
Shareholders who also are employees pay income tax on their wages. The corporation and the employee each pay one half of the Social Security and Medicare taxes, but this usually is a deductible business expense for the corporation.
To form a corporation, you must file articles of incorporation with your state, a process generally done through your Secretary of State’s office.
Paul Mocker, CPA
6599 Camino Venturoso
Goleta, CA 93117
(206) 328-6794 Tel
(805) 856-1567 Fax
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