[00:00:30] Speaker A: Welcome to Balancing Acts. I'm your host, Linda Hamilton, a CPA certified exit planning advisor and systemologist. Balancing Acts is about helping you balance all the things you have to do to run a successful, profitable business, both life and business topics. Today we're going to talk more about. I see this as a year end tune up or year end housekeeping for all those LLCs and S Corps and even sole proprietors out there. So we have a great guest with us today, Nellie Akelp, who is a prominent figure in the startup community. She started her first business alongside her husband with just $100 and turned it into a multimillion dollar business acquisition after only a few years. She's taking her experience as a successful entrepreneur and became a small business advocate, inspiring and educating millions of people through podcasts and webinar appearances and regular monthly columns and blog posts.
She writes for Entrepreneur for Forbes and she's been named Women Business Owner of the year by Nabo, a top 100 small business influencer by Small Business Trends. Welcome, Nellie. It's great to have you.
[00:01:45] Speaker B: Thank you so much, Linda. It's such a pleasure being here with you. I'm so grateful. Thank you for the opportunity.
[00:01:52] Speaker A: And I'm going to say one thing that is totally inspiring to me. Not only did you start a startup, but you did it with your husband. And that's often, you know, a struggle for business owners who are in business.
[00:02:03] Speaker B: With their spouse therapy, I'll tell you that.
[00:02:07] Speaker A: I bet, I bet I'm very, very.
[00:02:10] Speaker B: Very, you know, transparent. I mean, you know what, you can do it, you can do anything you set your mind to, but you're gonna start that business with your husband. Make sure you put some money aside for couples therapy.
[00:02:25] Speaker A: And I'm sure a lot in our audience are, there's many businesses that do that. So thank you for that. So this episode is about kind of S Corps, LLCs, VOI filings. I like to think of it at this time of year as a year end housekeeping tune up, you know, taking care of things and making sure that you get things. You're, you know, balancing all that compliance stuff that gives everybody a headache. So let's first start with BOI filings, beneficial ownership, which I don't think you can hear enough about because it's a little confusing to business owners.
[00:03:00] Speaker B: Yes. So fincen.gov came out with a requirement right at January 1, 2024, requiring all business owners who qualify as a beneficial owner to file a VoI filing report, which is referred to as a bet. It stands for Beneficial Ownership Information Report for businesses who qualify. And this applies to corporations and LLCs, they take them through a quiz. If you're a beneficial owner of a corporation or an llc, whether domestic or foreignly qualified, you will have to file a Beneficial Ownership Information report with the fincen.gov website. And it depends on when you form form that business. So if you form that business before January 1, 2024, then you'll have to file that Beneficial Ownership information report by January 1, 2025. So on or before January 1, 2025, that beneficial ownership Information Report must be filed by corporations or LLCs who qualify. Now, if you're a business, corporation or LLC who forms on or after January 1, 2024, then you have to file within 90 days and this requirement will change and will be updated if that corporation is going to be, you know, formed on or after January 1, 2025. So all of this and more is on our
[email protected]. and, and for those of you who are interested in having someone file it for you, we can do all the legwork, file it for you and make sure you're, you know, that corporation or LLC is in compliance. But there are a lot of filing dates to keep, you know, track of. So if it's a corporation or LLC that's in existence and has been in existence prior to January 1, 2024, then that corporation, if they qualify as a beneficial owner applicant, has to file that BOI filing on or before January 1, 2025. If it's a corporation or LLC that's been filed on or after January 1, 2024, they have 90 days. If it's a corporation or LLC that's going to be filing on or after January 1, 2025, then they have to file 30 days of that filing thing.
[00:05:34] Speaker A: Right. And I'm telling people, basically, if you existed already in 2024 or before, get in touch and get help. Now we're almost at the end of the year. It's time to find, to get this file because the penalty, what is it close to $600?
Is it a day or a year? It's a nasty penalty.
[00:05:53] Speaker B: What they're telling us it's up to $10,000 per corporation or per entity. But as you know, it's a case by case scenario, may have some reliefs that they come up with. But what we're telling, you know, our clients is, you know, you can potentially get fined up to $10,000.
[00:06:13] Speaker A: Yeah. Or the red tape in trying to get out of the penalty. So just get it done. It's actually not a difficult filing. It's mostly name, address and information. So you put putting out there ownership could be a little bit about not just that you own the company, but perhaps an employment agreement or something that maybe gives you control over the company, that you could influence it. So you want to get in touch and make sure you have that together.
That's our best advice.
[00:06:42] Speaker B: Yes. And just so you know, you brought up a great thing here as far as who actually qualifies as a beneficial owner. We have a great, great quiz listed on our website as a link that when you go to our
[email protected] what you can do is just click on the BOI filing and it takes you through a quiz to determine whether you're actually a beneficial owner that qualifies to file this BOI filing.
[00:07:09] Speaker A: Thank you. And there's always some complication, oh, I closed my business before the end of the year. You still might have to file. It's not painful, just do it. If your lawyer's not helping you with it or if your accountant's not helping you with it, you can get this done. I've sent many of my clients to corpnet.com to help them with that filing.
So, you know, so that's a year end housekeeping. That's really important. And I think that's an annual housekeeping. I think we're going to actually have to update that once a year, aren't we?
[00:07:42] Speaker B: That is correct. We don't know yet, but that's what I'm assuming.
[00:07:48] Speaker A: So keep our ears open for what the government. And you know, they do love their red tape. So let's talk now about, let's say S corporations in general. You know, you posted something recently which I thought was an excellent article about, you know, whether an S corporation could actually be harmful to your client or is it really good for your client. And oftentimes I hear accountants say, oh, it's going to save you money in tax. But tax is not the only reason to have an S corp and it's important to really think through these things. So what is your perspective on that?
[00:08:25] Speaker B: So, Linda, I really love this topic because, you know, I'm an open book, we're an S corporation. I love it. But it's not for everyone. So let's just get to the basics. First, an S corporation is not a type of business entity. It's generally speaking a C corporation or an LLC who applies to the IRS to apply for this designation, for the IRS to treat that business entity as A pass through or a flow through entity. What does that mean? A pass through or flow through entity means that all the profits and losses will pass through and be reported on the shareholders of a corporation's tax return or members if they're owners of an llc. So what this is doing by a corporation or an LLC applying to the IRS and wanting to get approval for their entity to be treated as an escort Corp designation, what it means is generally that C Corp that would typically be paying double taxes would now be treated as a pass through tax entity and that they're avoiding double taxation at the corporate level. So the profits and losses flow through and are taxed once at that shareholder level. Similarly with an LLC who will qualify, it's basically having that LLC member now be able to be taxed as an S Corp avoiding double, not double taxation, but avoiding those higher self employment taxes that otherwise an LLC member would have to pay. So again, it's really important to first realize that an Escort Corp is not an entity. It's a designation that's provided by the IRS to that corporation or to that llc. Okay. And it's only if you qualify and the IRS approves the S Corporation election for you. Now the question becomes who qualifies for C Corps? It's basically all shareholders have to execute this document, which is what is called a form 2553. They have to fill it out. All shareholders have to execute it. There can only be up to 100 shareholders. There can only be one class of stock and that designation has to be made within 75 business within 75 days of that corporation or LLC coming into existence, similar to an LLC as well. And the shareholders have to be US citizens or resident aliens. They can't be, you know, out of the country or foreigners. Now the question becomes why would a C corporation want to elect S Corporation status? Generally speaking, the biggest reason is to avoid double taxation. Okay, so why? They don't want to pay, you know, one set of taxes at the corporate level. And then when the shareholders get a distribution as a dividend, they want to, you know, having to avoid paying those double taxes. So by electing S Corporation status for those corporations who qualify, they're avoiding having to pay those corporate taxes at the corporate, corporate tax level and they only have to pay at the shareholder level now.
[00:12:09] Speaker A: Exactly. And so, you know, we're going to talk more about this throughout. We're going to take a commercial break. You can find more on Nellie's website, corpnet.com but we'll be back in a moment. And we'll talk more about s Corps and LLCs and the differences.
[00:12:36] Speaker B: Foreign.
[00:12:42] Speaker A: Welcome back to Balancing Acts. I'm your host Linda Hamilton, a CPA and certified exit planning advisor. And I'm talking with Nellie Akalp, the CEO and founder of CorpNet.com which is an entity that helps business owners with all the compliance things they have to take care of entity filing and creation, BOI filings. And Nellie does tremendous amount of speaking for the small business community. Nellie, we were just talking about S corporations and about qualifying. So how about you? You mentioned that a C corp could become an S corporation. I call it a tax creature. Right. It's not an entity, it's. It's something created by the IRS for taxation only.
But an LLC can also elect to become an S Corp. Why don't you tell us about what you see as the advantages for that and how to go about it.
[00:13:38] Speaker B: Thank you, Linda. So as we were talking, the main question becomes why does an LLC want to be taxed as an S corp? Because a lot of times my clients will be like, wait a minute, an LLC is already a pass through tax entity. It's already a flow through through entity. Why would I want to be taxed as an escort? That's a great question and here's the answer for you. LLC members cannot be employees of the llc. And the members of an LLC cannot take a paycheck out of that llc. A lot of times an LLC we tax, you know, it's taxed as a hybrid between a corp and a sole proprietorship. That's how we kind of, you know, characterize this entity. It has an elements of a corporation, AKA that personal liability protection, asset protection, and it combines it with elements of a proprietorship or a partnership. So for that reason, by default, single member LLC are taxed as a sole proprietorship. Similarly, if it's a two or more plus member llc, it's taxed as a partnership. However, if it's taxed as a sole prop or a partnership, by default members of an LLC cannot be employees of an LLC because AKA of that proprietorship element. So what happens is because they have to take a draw out of that LLC and they're only limited to taking a dedicated draw out of that llc. They can't take a paycheck. So if they want to draw funds out of that LLC to pay for themselves, they have to take it as a draw. What happens is their tax, you know, as a self employer, so they have to pay higher self employment taxes. A way to get around this and save on Taxes is oftentimes if that LLC member gets taxed as an S corporation, if they qualify, then what they can do is take a paycheck out of that llc, saving on those high self employment taxes. Now the question becomes, what if I don't qualify as an S corp because I'm a foreigner? Because as you know, anyone can become a member of an llc, even trusts. Okay, so then what happens? They ask me, well, if you can't qualify as an S corp to, you know, register for payroll and take a paycheck out of that llc, you can opt for having that LLC be taxed as a C corporation. Because if that LLC is taxed as an S corp, if you qualify and if you don't, you can get taxed as a C corp, then those members, either by being an S corp election or a C corp election, can take a paycheck out of that llc, pay themselves through payroll and then lower those self employment taxes. Okay?
[00:16:45] Speaker A: Right.
[00:16:45] Speaker B: So they, my clients will come to me and say okay Nelly, where, where do I sign up? You know, And I say wait a minute, beware, okay? Because there are compliance requirements that you're gonna have to abide by if you make these elections.
[00:17:01] Speaker A: Right. And I was going to say, so I've been a practicing CPA for more than three decades and I like to have a conversation with my clients. And you know, even as an S corporation there is an employer share of self employment tax, right? Of the employment tax. There are still two sides. The difference is that if you take distributions out in addition to your paycheck, those are not subject to self employment tax with an llc. But beware. One of the things I like to talk to them about is compliance. Okay? Sometimes they're not very good at doing the payroll or they didn't take enough taxes out of their paycheck and they have this huge profit at the end of the year and no estimates paid. So I really like to make sure I understand the personality of my client that they are going to be able to comply. Running payroll means will cost you money. You need a payroll company, someone has to do that. Your books are going to be a little bit different than with an LLC or sole proprietor. So my point is that yes, these things can lower your tax, not always as much as you expect, but there will be other costs upsetting to it. And you have to make sure you really understand it, how to do it. And the biggest problem, problem I think would be to be able to take distributions, you have to make sure you're paying yourself a Reasonable salary. What is the definition of a reasonable salary? So let's talk about that for a moment.
[00:18:32] Speaker B: So I'm really happy you brought this up because this is where the IRS cracks down on these corporations and LLCs. The reasonable salary requirement requires that if that corporation or LLC see is electing to be taxed as an S corp for purposes of taxation, they must, as a shareholder of that corporation pay themselves a reasonable salary. Which means they have to pay themselves what a reasonable person doing, you know, their duties in that company would get paid for in doing those services. Oftentimes what happens is these corporate shareholders will pay themselves a very small salary and take the balance of it as a distribution that will alert the IRS and it causes red flags for that corporation or llc. And the IRS is really, really cracking down on these corporations and LLCs that are taking, you know, as a shareholder are taking smaller paychecks on payroll and taking big, big distributions in the form of a distribution. So at the end of the day, the reasonable salary requirement, you know, is basically take the salary that, you know, let's say you're a CEO of a company and you know, you're a shareholder of that company, you have to pay yourself a reasonable salary as to what is reasonable for a CEO getting paid in, you know, managing that corporation or llc. Similarly, let's say you're a controller and you're also a shareholder. What would a reasonable controller be paid in running that corporation? So reasonable salary requirement means take a look@ Indeed.com, take a look at the, you know, salary.com and see what a reasonable person providing the those services as part of a five plus person corporation or a ten man corporation or LLC would be paying themselves because you're saving yourself a ton of headache right in the long run.
[00:20:39] Speaker A: And, and one thing you have to look at, and as in most small businesses, we wear a lot of hats. So you know, you may be wearing a CEO hat, you may be doing your own marketing that's going to be paid less. Possibly you may be doing your bookkeeping and the bookkeeping is paid less. You, you want to kind of slice and dice that to enable you to have a salary that's maybe a little lower and take higher distribution. But if you have a $30,000 salary and a $60,000 distribution, you better make sure that not only is it reasonable, but you must document it. You must be able to prove why was it reasonable. Yes, indeed, RC reports, which is one I use. But you want to make sure that your accountant is talking to you about that. I Know that you have some great articles about reasonable compensation on your website. So I hope people will check that out. So thank you for sharing that. What would you say are the, you know, what other compliance things does an S Corp have to think about at year end that maybe an LLC does not?
[00:21:44] Speaker B: So, so this is, this is the perfect time of year that we're having this conversation. You know, again, an S Corp is a tax designation. So at the end of the day, that entity is a corporation. Which means as a corporation, you have a ton of compliance formalities. At the end of the year, that corporation needs to ensure, you know, one, first and foremost, we talked about it earlier. But that BOI filing requirement has to be filed if it's an existing corporation on or before, you know, January 1, 2025. As a corporation, you are required to draft annual meeting minutes and make sure those annual meeting minutes are drafted yearly and kept in a safe place at your principal place of business. You also, as a place corporation, are required to file your annual report on a yearly basis. So as a corporation, depending on your state and your state's filing requirements, you must check and see when your annual report filing is due. Typically, annual reports are due at the anniversary of your corporation's filing date. But some states, you know, it could be biennial.
And some states may even require you to file an initial report and then an annual statement of information. So these are, you know, filing requirements and deadlines that you must make sure you acclimate yourself with and make sure you know when you're filing due. Dates and deadlines are so you don't miss them, because chances are, if you do, you're running the, the risk of potentially losing that corporate bail and losing your corporate shield as a corporation because the state may administratively dissolve that company if you're not in compliance with state filings and formalities. Additionally, at the end of the year, specifically, if, for example, your corporation or LLC has changed its principal place of business, you're deciding that you want to make some changes to the members or shareholders. There are filings that are required to be filed, and we always recommend these filings to be done before year end so that here comes the new year, you're ready to focus on, you know, you know, launching your business or growing that business. Last but not least, you know, you may have to, you know, you may, you know, have been considering, hey, you know what? A corporation is not doing it for me, you know, as far as taxes, maybe I need to convert, you know, and maybe you want to convert from a C Corp to an LLC or similarly an LLC to a corporation. You may want to consider converting that business.
[00:24:40] Speaker A: Exactly right.
[00:24:42] Speaker B: Last but not least is closing business.
[00:24:45] Speaker A: And so we're going to take a commercial break and come back and talk more. More. You can find more
[email protected] but we'll be right back with to continue our welcome back to Balancing Acts, I'm your host Linda Hamilton, a CPA certified exit planner and systemologists and we're talking about year end housekeeping, year end compliance with Nellie Acalp about and she's the founder and CEO of CorpNet.com which helps business owners with a lot of these compliance things which may sound boring and things you don't really want to deal with, especially at year end. But it's so important to keep your, your business entity compliant and to protect yourself so you, you can focus on what you do best and grow your business. So Nellie, we have been talking about LLCs and S Corps and you were starting to say in the last segment about if you wanted to dissolve your entity near year end, what should you think about?
[00:26:00] Speaker B: So it's really important if you have an inactive business, if you're thinking about shutting that corporation or LLC down prior to drop 2025, it's really important that not only you close up shop and close out your books, but just by doing that is not enough. If it's a corporation or llc, that corporation or LLC must also file documentation with the Secretary of State's office in the state that that corporation or LLC was originally filed dissolving that corporate or LLC business entity. And the way you typically do this is by filing articles of dissolution before the year end to make sure you have an active filing date of on or prior to 1231, 2024. If you fail to do this, no worries, you'll just have to pay additional fees. You may have to file another set year set set of tax returns and we're trying to avoid that for most company owners who are having an inactive business or running an inactive business. So if you're closing up shop, if you have an inactive business entity at the end of the day you want to close it down, shut it down. Make sure you file your final paperwork honor before 1231, 2024 so you don't have to bleed into, you know, 2025.
[00:27:29] Speaker A: That'S good advice to take care of that because that, that does happen when people are inactive or decide they want to maybe even start a new business and and they're going to stop doing their former so you Know, we talked a little bit about some of the compliance on, on, let's talk about like if, if you want to grow your business, is there a, you know, what are examples of businesses that are maybe better suited to be an LLC or better suited to be a corporation?
[00:27:59] Speaker B: Great question, Linda. So generally speaking, if that company has an exit strategy from day one, generally recommended is the C Corp entity. Most investors will look upon that entity when they're wanting to, you know, invest in that business entity. It's preferred as a C Corp. You know, generally speaking, S corporations, which is a C Corp tax as an S Corp by the irs. It's more for either a mom, paw shop, husband and wife or a company that's one, a business that wants to grow but also wants to reinvest those profits back into the business. And it's more for family owned type businesses that want to, you know, maintain control within the business, maintain ownership, but also grow the business.
LLCs are a different breed. It's for somebody who really, you know, can, can be in business for any, you know, thing whatsoever, but they just don't want that headache or paperwork and they want that asset protection. However, they don't want to be dealing with a ton of formalities. So the way I, you know, kind of express what an LLC is or define what an LLC is, you get to have your cake and eat it too is, you know, you get all of the benefits of a corporation when it comes to liability protection and asset protection, but without all of those corporate formalities. And generally what we see, you know, as the type of businesses who mainly run LLCs are consulting firms, you know, a single man or a single woman operation that basically wants that asset protection, wants that, you know, entity, you know, wants to look credible in front of their clients, but yet doesn't want to deal with all those corporate headaches and form.
[00:30:01] Speaker A: Yeah, and you know, it's a good point.
Some people think the only reason to decide are taxation. But there are many non tax reasons to consider in choosing whether an LLC is right for you or an S corporation. So you can get liability protection from either one. What are some of the other reasons that one or the other would be better for you?
[00:30:25] Speaker B: I mean, here's how I break it down. Like what? Why does one want to become an entity? Okay. And first and foremost it's liability protection. Okay? You, you are forming a business entity such as a corporation or an LLC because you do not want to be personally liable as a corporation or llc. What happens is, you know, as long as it's properly complied with and properly, you know, dealt with. And we're not doing it for any unlawful or illegal purpose. It's actually creating a little shield around you as the business owner and because you're separate from that business entity. So first and foremost, it's liability protection, asset protection. Second, as you know, I like to kind of lump them together, but it's for that business owner who has a ton of assets. You know, if you have a ton of assets, a house, a car, retirement savings, you do not want to be the business. You want to separate yourself from that business. Because chances are, if you're, you know, running a business that there is a high likelihood of sometimes, God forbid, you ending, you know, on the wrong end of that litigation or lawsuit, they may be able to pierce the corner corporate veil and come after you personally. So that's the second reason. Other reasons are credibility. By having that Inc. Or LLC at the end of the business name, it's going to provide more credibility to people who are wanting to deal with you as a business owner. Chances are people are going to look at you as more of an established type of business entity. They look at you as, hey, they've taken the steps to legalize themselves that to legitimize their business entity. So we're going to feel more comfortable working with this business entity. Other reasons are tax reasons. You know, as a corporation or llc, there may be more tax advantages for you as a business owner to run your company as a corporation or llc. And then last but not least is credit. You know, trying to qualify and gain business credit as a corporation or llc.
[00:32:41] Speaker A: Right. And I would add the business of, you know, as you mentioned, protecting the corporate veil, which means you're kind of running it, maybe too many personal things through it. So what we see in accounting is, you know, if you have multiple things, don't run your personal stuff through your QuickBooks file. Set up a separate QuickBooks file. You don't want to pay for two files to intuit. Do it anyway. Because not having that separation when it really matters and you have assets and investments can really kind of mess you up. If there is ever a problem, we don't want there to be a problem. But the whole point of you creating this separation for liability was to protect yourself in what if so have separate QuickBooks files, try to use separate credit cards, you know, try to do things that actually prove that it really is a separate person from you. And I think that's one of the things that I've seen in my entire career as A cpa. And I often will make sure that I kind of nag my clients to do it the right way so they don't have problems.
So how about in terms of like growth or scalability, is one better than the other? I mean I have seen some large LLCs.
[00:33:56] Speaker B: I, you know what I was going to say, you know, I, I think it really depends on that business owner and how much stomach and patience they have for corporate formalities, paperwork. You know, I'll use ourselves as an example. We went from a 15 person company to over a 200 plus company right after Covid and, and you know, we're an S Corp. So and we've scaled our business.
So I think it really depends on, you know, it's not kind of an all in one box type of a thing. It's a case by case and it really depends on that individual business owner's tax situation and you know, how much they're, you know, producing as profits as a, you know, corporation or LLC and which one would be best for them in their particular situation. But you know what, generally speaking, if you're to get my advice, oftentimes I would opt for corporation whether C Corp or C Corp with an S Corp if it's somebody who wants to scale. If it's more in the tech industry or tech world, I am seeing more and more companies opting for the LLC business entity and then being taxed as either a C Corp or an S Corp. Yeah.
[00:35:26] Speaker A: And I think, you know, real estate is often held within an LLC for, for to avoid double taxation. So there are reasons there. And again, I think as a CPA I want to talk to people about their personality, whether they are going to comply, whether they can deal with the, you know, all the corporate compliance things you talked about. So we're going to take a commercial break. You can find out more about lots of these
[email protected] and when we come back, we'll, we'll finalize it. But talking about some of the pros and cons and just some helpful things and misconceptions that there are around these types of entities. Thank you.
Welcome back to Balancing Acts. I'm your host, Linda Hamilton, a CPA certified exit planning advisor and systemologist. And today's episode is about all the compliance and housekeeping things you'd have to do with your LLC or your S corporation and even talking about which is the right entity for you. Nellie Akalp, the founder and CEO of CorpNet.com has been great gracious enough to share her expertise with Us. So Nellie, we were just talking about really the pros and cons of each. But what are the steps if someone decides, oh, I've listened to this or I've done some research and I would like to become an S corporation. What are the steps they would take?
[00:37:04] Speaker B: Great question. So for a business owner who wants to have that business entity be it corporation and then elect S Corp election and have the IRS treat their C corporation as an S Corp, what needs to happen is first that corporation has to come into existence by filing articles of incorporation with the Secretary of State's office in the state that that business does the majority of their business that is their home state. Once that corporation is filed and the Secretary of state provides them stamps filed documents of their corporation coming into existence, then they have to file a form called IRS 2553 with the IRS. In order to do that, they must first make sure they're eligible for this filing by making sure one, you know, there's only up to 100 shareholders. All those shareholders are US citizens or resident alien of the US and there has to only be able to be be common, you know, one class of stock, typically common stock is the default and that election has to be made a five day duration has become effective so 75 days from the filing date. And also all the shareholders have to execute by signing the, you know, IRS form 2553, mail it or fax it in the IRS, wait for the IRS to approve the election once that's done. Okay? And all of this by the way is very similar for an llc. Okay? The LLC first has to form by filing with their Secretary of state articles of organization, wait for that filing to be approved. And then if that LLC wants to be treated as a, you know, S Corp for tax purposes, then they have to file that form 2553. So all of these steps are similar. Once either that corporation or LLC gets that approval letter from the irs. Guess what? First and foremost, if those corporate shareholders or those LLC members themselves want to take a paycheck out of that corporation or llc, they have to register for payroll tax account, set up their payroll expense accounts, you know, make sure they, you know, partner with a payroll company that will process their payroll unless they have an in house controller that's going to be doing their payroll. But they have to take all those steps. You can't just pay yourself, you know, through a paycheck without setting up that employer tax account, whether it be the state unemployment insurance account, the sui account or that state income tax withholding accounts. So you have to set up those accounts. Otherwise that in and of itself would put you out of compliance and the IRS is going to charge you for back payroll taxes. So those are the steps. You know, the other question is, well, you know, Nelly, I have clients who you know, are not only setting up themselves, but they're paying, you know, employee, they're hiring employees. Employees and they're paying these employees out of state. And guess what? You need to also comply with that. So let's say there's a corporation or an LLC that not only is hiring in their home state, I. E. In the state that that corporation or LLC is set up, but now they're hiring out of state in a different state. Guess what, there's nexus now. And guess what? That LLC or corporation has the foreign qualified within all those states that they're hiring employees. If that state's requirement is that, you know, by having an employee in those states, that in and of itself is considered nexus. And if it is, they have to first foreign qualify that corporation or LLC as a foreign entity in those states. And also before they pay their employees through payroll, they have to set up employer tax accounts in those states.
[00:41:21] Speaker A: So let me, let me summarize that from my CPA perspective. One, to set up a payroll account, you create an employer account like you create a sales tax account. That's number one. You tell them when you're going to start payroll and then that started and then you take that number, they give you an ID number. Sometimes it's the same as the one you're already using and you take it to a payroll company and they start to file for you. The same thing applies to other states. When you think about it, we have 50 states in the United States. It's like 50 different little countries. They all have their own rules. They might have rules around workers comp, insurance or disability. And so sometimes I have clients since COVID they're hiring in many, many, many states. But that does complicate your life some with these rules because now you'll have to file not only payroll returns, even if they work from home, but corporation. So that's okay. Just be prepared for that or limit yourself maybe to only hiring in, in a few states so you have a less complicated return.
Nellie, let's, let's talk about some of the, the year end steps that you know, even, even the common mistakes they make when they're actually getting started with their S Corp. What are those mistakes?
[00:42:43] Speaker B: I would say year end mistakes or even common mistakes. One of the big ones we see Is, you know, filing in a different state other than the state that they're actually physically located in and you know, doing the majority of their business, you know, I see a lot of people going for Delaware, Wyoming, Nevada, you know, and that being the hype, you know, well, we, you know, we thought Delaware, you know, because there's such a hype about Delaware. At the end of the day, if you're a corporation or LLC and the majority of your business is within, you know, state acts or state more, why forming in Delaware, Wyoming, in or in any other state is going to not serve you well. It's only going to subject you to multiple filing requirements and multiple laws and tax filings in both states. And guess what? Your home state is still going to come after you. So at the end of the day, general rule of thumb, if you're going to be setting up a corporation or LLC file in the state that the majority of your employees are within your, your principal place of business is where you as the shareholder or business owner are residing, where your employees are resigned, you know, where your servers are required, you know, are located.
Another big one we see especially at year end is, you know, that inactive business, you know, they're an inactive business and they fail to close up shop prior to the new year. Well, guess what, it's only hurting you because now you let another year go by and the state, you know, as a corporation or LLC is still going to mandate you to file those compliance filings, such as the annual report paying another year of franchise taxes to the franchise tax board.
Or another big one we see is failing to pay your franchise taxes or failing to file your annual report timely. And then the state administratively dissolving that company. And here you are in the midst of a big transaction. They're asking for your corporate documents, they're asking for a certificate of good, good standing. And then it comes back that you know, your corporation or LLC is in bad standing. That's going to prevent you from doing a lot because especially if you're a company who now needs to foreign qualify in other states, guess what? You're not going to be able to unless that home states corporation or LLC is in good standing.
[00:45:28] Speaker A: Yeah, one, one of the reasons I've seen some clients maybe for in Delaware and foreign qualify even in their home state would be, you know, they're not going to stay there. So, you know, I've had people, they're from Virginia, that's where their parents are from. And, but they're living in Texas and, and they're kind of going to go back and forth. They haven't decided where they want to be. And so that might be a little simpler to withdraw from a state. It's harder to withdraw from. Right. What you consider your home state. I think think so. But again, these are things that you want to get some professional help. Too many people just go online and form their own entity, you know, at legal zoom or something. But there's a lot, there's thought that goes into it. So you're better off even if somebody doesn't do it for you. Talking through some of these questions. So you'll understand that.
And, and the, you know, the payroll for filings as well you can have, you can have a lot of penalties for not for doing that. And you're responsible for withholding taxes. So it's important to understand the states that you're doing business and how would you like to leave People coming to the end of this segment, we've shared a lot of information.
What would you say are maybe a few things actions people can take from four year end through the small steps to get things done.
[00:46:54] Speaker B: First of all, thank you so much for this opportunity. I've had a blast just being on this segment with you. So thank you for that.
Number one, first and foremost is you got a BOI filing deadline that was just mandated by the fincen.gov website for all new and existing corporations and LLCs. First and foremost, make sure sure you do the research. Whether you're going to do it on your own or come to us, we can assist you with filing that VOI filing. If you're a new or existing corporation or llc, we can also take you through to see whether you qualify and if you're even required to file a beneficial ownership information report. So that's first and foremost. Second is make sure if you're an inactive business that you close down that corporation or LLC not only by winding down the books, closing up shop, you know, making sure you tie loose ends, but you have to formally file a certificate of dissolution with your state, also known as articles of dissolution. And that article of dissolution has to be filed for your home home state. But if your corporation or LLC is also foreign qualified, you have to also file a certificate of withdrawals. Right?
[00:48:15] Speaker A: Exactly.
And please let people know where to find you. Is it LinkedIn, just your website?
[00:48:23] Speaker B: Yes. So for those of you interested in checking out my company, Please go to www.corpnet.com. you can also send your inquiries to inforpnet.com or just pick up the phone and dial 1-888-49-2638. If you're also someone who wants to, you know, refer out our services or use our services and put them on your website, we also have an amazing partner program where you can partner with us just like Linda has and, you know, refer out our services to others. But at the end of the day, it's been a pleasure to be here on this segment with you. My name is Nellie Acalp. You can reach out to me via LinkedIn at Nellie Akalp, on Twitter at Nellie Akalp, on Facebook at Nellie Akalp. And you can send me any messages you like to infoorpnet.com thank you.
[00:49:21] Speaker A: Thank you so much, Nellie.
I hope you will all do your homework and make sure you cover all the steps you have to take for your year end housekeeping. Come back next week for another episode of Balancing Acts.
