Incorporation & Business Start Up Planning

Auto Expense

Lease vs. Buy – Which is better? Depends on the economics of the deal.

• If Lease – deduct lease payments x % used for business
  • Penalty for high mileage
• If Purchase
  • Option 1 – Use IRS mileage rate (includes gas, maintenance, depreciation etc.)
    • Business miles (not commuting miles) x standard rate as a deduction on Schedule C (SP) or corporation return (S, C or LLC)
    • Better than other options if driving a lot of miles
    • Technically need to record miles
  • Option 2 – Purchase car and depreciate
    • Only depreciate % of car used for business
    • Can also deduct gas costs
    • Depreciate recapture if do not trade in
    • Deduct Actual Costs
      • Keep receipts for maintenance costs of car

Health Insurance

Insurance (premiums) on owner of SP, S-Corporation & LLC are deductible on individual’s return as an adjustment to AGI (not subject to 7.5% limitation)

• Options for employees
  • HRA
  • HSA
  • Traditional

Payroll

• Sole Proprietorship
  • Owner
    • No payroll filings necessary
    • Estimated payments required 4 times a year
      • Need to estimate tax liability on earnings of company – penalties if payments do not match income
• Employee
  • Will need to file Form 941, IL-941, UI-3/40 (IL unemployment compensation) quarterly. 940EZ (federal unemployment annually)
  • Deposits more frequent for federal withholding and FICA depending on size of payroll (if federal withholding + FICA are > $2,500 than must deposit monthly with your bank)
• S-Corporation
  • Owner & Employees
    • Will need to file Form 941, IL-941, UI-3/40 (IL unemployment compensation) quarterly. 940EZ (federal unemployment annually)
    • Deposits more frequent for federal withholding and FICA depending on size of payroll (if federal withholding + FICA are > $2,500 than must deposit monthly with your bank.

Home Office

• Advantages:
  • Owner - If no office and you use part of your home exclusively as an office can deduct the % (square footage of home office/total square footage of home) amounts paid for costs associated with the home.
  • Can depreciate the % of house used for business (39 years)
• Disadvantages
  • Depreciation recapture upon sale of house

Where do I begin?

• Set up corporation (if applicable)
  • Usually $1,000 capital contribution + incorporation costs
• Register with County
• Register with Illinois
• Set up new checking account in corporate/business name
• Obtain credit card in corporate/business name
• Track personal payments in/out of corporation
• Track business meal & entertainment
• Liability, renters (furniture etc.) and workers compensation insurance (if employees)

Seem like a lot of information?

Don't worry, Reliance can break it down so you don't have to. Whether you are just starting out, or have come to the realization that you need a strong accountant in your corner, don't hesitate to call Reliance today!

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