Yesterday we received a copy of our corporate taxes for 2005 from our CPA. Corporations file by March 15, instead of April 15.
I was pleasantly surprised to see that we just owe a small amount to California, and nothing to the feds. We paid quite a bit in quarterly payments in 2005, and then of course had income taxes deducted from our paychecks after we incorporated.
Handling taxes as a corporation has been an involved process, with regularly scheduled meetings with our CPA throughout the year, just to make sure we're doing everything legal. I expect things to go a little more smoothly in 2006.
I'm planning to get more expenses paid by our company so that we can get them deducted. Lisa is keeping a memo book to log all her mileage, when she drives to the bank, or to the office supply store. And our company is now paying us to rent out a couple of bedrooms as office space. These things will be deducted as business expenses to lower the company's overall tax liability, but the company will actually pay us cash for them as well.
This has the effect of saving money. The money is simply being moved from one account to another. But because it's counted as business expenses, it lowers the company's taxes. And keep in mind, that because we're an "S Corp" (that's a Class C Corporation, with the Subchapter S exemption), the company's money is taxed as personal income.
So, it's all our personal money either way, except that when you incorporate as an S Corp, you can use your corporation to lower your overall tax liability.
I was pleasantly surprised to see that we just owe a small amount to California, and nothing to the feds. We paid quite a bit in quarterly payments in 2005, and then of course had income taxes deducted from our paychecks after we incorporated.
Handling taxes as a corporation has been an involved process, with regularly scheduled meetings with our CPA throughout the year, just to make sure we're doing everything legal. I expect things to go a little more smoothly in 2006.
I'm planning to get more expenses paid by our company so that we can get them deducted. Lisa is keeping a memo book to log all her mileage, when she drives to the bank, or to the office supply store. And our company is now paying us to rent out a couple of bedrooms as office space. These things will be deducted as business expenses to lower the company's overall tax liability, but the company will actually pay us cash for them as well.
This has the effect of saving money. The money is simply being moved from one account to another. But because it's counted as business expenses, it lowers the company's taxes. And keep in mind, that because we're an "S Corp" (that's a Class C Corporation, with the Subchapter S exemption), the company's money is taxed as personal income.
So, it's all our personal money either way, except that when you incorporate as an S Corp, you can use your corporation to lower your overall tax liability.
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