Tax Guru – Ker$tetter Letter

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Setting Up Corp

Posted by taxguru on February 14, 2009

Q:

Subject:  C or S corporation, no employees/partners

I am not sure if you reply to emails asking for additional advice, but I’ll give it a shot.
 
I am starting a marketing company in Ca. with no employees. (new babies, need money)
 
I do have a full time job, and this will be on the side.
 
>From your article a C corporation makes more sense for me.
 
But, I am scared of ticked off tigers, cobras, AK-47s, and the IRS.
 
Will I be asking for trouble if my company makes no money, and I decide to end the corporation in a year or so?
 
Does my separate tax return get red-tagged if I start a corporation that does/does not make money?
 
Thank you in advance for your time.

 

A:

You really need to be working with an experienced professional tax advisor to set up the best strategy for your unique situation.

A corp that only has losses doesn’t really attract a lot of dangerous attention from IRS; so that really isn’t a concern here.  However, there are some other more important issues that you need to evaluate.

For example, I am wondering why you are so anxious to jump into the cost and hassle of setting up a corp right now.  Most small businesses start off as Schedule C sole proprietorships and then evolve into a corp entity as they become more profitable.

Sole proprietorships cost nothing to set up or dissolve; unlike corps in Calif, which have a $800 minimum annual tax.  Losses from Schedule C can also be used to offset other income on your 1040. While losses from S corps can be used to offset other 1040 income, C corp losses can’t do that.

Please consult with a tax pro before you take that expensive leap into a corp.

Good luck.

Kerry Kerstetter

 

Follow-Up:

Thank you so much for taking the time to answer my email Mr. Kerstetter, especially in these holiday times. I have taken your advice, and will be seeing a tax pro. ASAP to seek some advice in these matters.

 

 

 

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