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Understanding the 6 Corporate Building Blocks

Running your corporation is often confusing. It involves professional fees, legal restrictions, taxes, accounting and a bunch of other nerdy stuff. Your corporation will be more enjoyable to run if you understand the 6 Corporate building blocks...
by

Jason Blumer

on 23 March 2017

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Transcript of Understanding the 6 Corporate Building Blocks

Understanding the Six Corporate Building Blocks...
...that lead to happy business owners!
by Jason M. Blumer, CPA of Blumer & Associates, CPAs, PC
jason [at] blumercpas [dawt] com
site: blumercpas.com
1. Legal Considerations:
S Corporation "Corp"
Use an attorney
Segregate Business and Personal Cash
Welcome the restrictions
2. Payroll Considerations:
You're an employee and an employer!
Don't make it too high
But it's got to be "reasonable"
Pay withholding on your pay
3. Shareholder Distributions:
Take out payroll AND distributions
Distributions = 60%, Payroll = 40%
Distributions can't exceed profit
4. Estimated Taxes:
Pay quarterly tax payments on your S Corp profit
Starts April 15th each year
Can pay out of your Corp.
Calculated at the individual level
5. Professional Fees:
You are gonna need some help with all of this!
Payroll fees
Corp tax prep fees
Accounting system fees
Consulting fees
6. Your Accounting System:
Logistics of when to setup your double-entry system
Which system is best?
Cloud-based on a SaaS model
Importance of periodic financial analysis
Let's take a look at the 6 Corporate Building Blocks
The building blocks...
Now let's see this as a timeline so you can see how your precious cash will be affected...
14 months is a good span of time to explore
let's take it one month at a time
month 1, January
month 2, February
month 3, March
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
month 4, April
month 5, May
month 6, June
month 7, July
month 8, August
month 9, September
month 10, October
month 11, November
month 12, December
month 13, next January
month 14, next February
and let's use an owner(s) example...
salary (pd monthly): $40,000 (withholding M,2)
personal income: $70,000
($40,000 salary and $30,000 business profits)
owner(s) personal effective tax rate: 12%
Initial cash outlay:
Attorney to start the corporation: $700 to $1,500 (depends on state law)
CPA to educate on the beginnings of the corporation, it's uses and restrictions: $400 to $500
CPA setup/training online payroll system for the corporate owners: $175 to $225 (depends on # of employees)
CPA draft of monthly software fees for double-entry accounting system: $29 to $100
CPA draft of initial accounting system setup: $179 to $250 (depends on setup time & complexity)
First salary payment to the owner(s): $3,333 gross pay, $2,722 net to owner after taxes
Monthly shareholder distribution: $2,000


Predicted savings as a corporation: $4,600 - $1,000 (atty) - $400 (education) - $175 (payroll system setup)
- $29 (acctg system fees) - $179 (acctg system setup) = $2,817 left over savings
Monthly cash outlay:
Monthly estimated federal and state payroll tax drafts on the 15th: $865
CPA draft of monthly payroll service fee: $30 (to pay taxes electronically)
CPA draft of monthly software fees for accounting system: $29 to $100
Monthly salary payment to the owner(s): $3,333 gross pay, $2,722 net to owner after taxes
Monthly shareholder distribution: $2,000



Predicted savings: $2,817 - $30 (payroll fees) - $29 (acctg system fees) = $2,758 left over savings
Monthly cash outlay:
Monthly estimated federal and state payroll tax drafts on the 15th: $865
CPA draft of monthly payroll service fee: $30 (to pay taxes electronically)
CPA draft of monthly software fees for accounting system: $29 to $100
Monthly salary payment to the owner(s): $3,333 gross pay, $2,722 net to owner after taxes
Monthly shareholder distribution: $2,000



Predicted savings: $2,758 - $30 (payroll fees) - $29 (acctg system fees) = $2,699 left over savings
Monthly cash outlay:
Monthly estimated federal and state payroll tax drafts on the 15th: $865
CPA draft of monthly payroll service fee: $30 (to pay taxes electronically)
CPA draft of quarterly payroll service fee: $60 (to file federal and state paryoll tax returns)
CPA draft of monthly software fees for accounting system: $29 to $100
Monthly salary payment to the owner(s): $3,333 gross pay, $2,722 net to owner after taxes
Monthly shareholder distribution: $2,000
Quarterly personal estimated tax payment (could be federal and state): $900


Predicted savings: $2,699 - $90 (payroll fees) - $29 (acctg system fees) = $2,580 left over savings
Monthly cash outlay:
Monthly estimated federal and state payroll tax drafts on the 15th: $865
CPA draft of monthly payroll service fee: $30 (to pay taxes electronically)
CPA draft of quarterly payroll service fee: $60 (to file federal and state paryoll tax returns)
CPA draft of monthly software fees for accounting system: $29 to $100
Monthly salary payment to the owner(s): $3,333 gross pay, $2,722 net to owner after taxes
Monthly shareholder distribution: $2,000


Predicted savings: $2,462 - $90 (payroll fees) - $29 (acctg system fees) = $2,343 left over savings
Monthly cash outlay:
Monthly estimated federal and state payroll tax drafts on the 15th: $865
CPA draft of monthly payroll service fee: $30 (to pay taxes electronically)
CPA draft of monthly software fees for accounting system: $29 to $100
Monthly salary payment to the owner(s): $3,333 gross pay, $2,722 net to owner after taxes
Monthly shareholder distribution: $2,000
Quarterly personal estimated tax payment (could be federal and state): $900


Predicted savings: $2,521 - $30 (payroll fees) - $29 (acctg system fees) = $2,462 left over savings
Monthly cash outlay:
Monthly estimated federal and state payroll tax drafts on the 15th: $865
CPA draft of monthly payroll service fee: $30 (to pay taxes electronically)
CPA draft of monthly software fees for accounting system: $29 to $100
Monthly salary payment to the owner(s): $3,333 gross pay, $2,722 net to owner after taxes
Monthly shareholder distribution: $2,000



Predicted savings: $2,580 - $30 (payroll fees) - $29 (acctg system fees) = $2,521 left over savings
Monthly cash outlay:
Monthly estimated federal and state payroll tax drafts on the 15th: $865
CPA draft of monthly payroll service fee: $30 (to pay taxes electronically)
CPA draft of quarterly payroll service fee: $60 (to file federal and state paryoll tax returns)
CPA draft of monthly software fees for accounting system: $29 to $100
CPA fee to perform personal year-end tax planning: $300 to $400*
Monthly salary payment to the owner(s): $3,333 gross pay, $2,722 net to owner after taxes
Monthly shareholder distribution: $2,000
*if deemed necessary

Predicted savings: $2,225 - $90 (payroll fees) - $29 (acctg system fees) = $2,106 left over savings
Monthly cash outlay:
Monthly estimated federal and state payroll tax drafts on the 15th: $865
CPA draft of monthly payroll service fee: $30 (to pay taxes electronically)
CPA draft of monthly software fees for accounting system: $29 to $100
Monthly salary payment to the owner(s): $3,333 gross pay, $2,722 net to owner after taxes
Monthly shareholder distribution: $2,000
Quarterly personal estimated tax payment (could be federal and state): $900


Predicted savings: $2,284 - $30 (payroll fees) - $29 (acctg system fees) = $2,225 left over savings
Monthly cash outlay:
Monthly estimated federal and state payroll tax drafts on the 15th: $865
CPA draft of monthly payroll service fee: $30 (to pay taxes electronically)
CPA draft of annual payroll service fee: $80 (to file federal and state paryoll tax returns and W-2s)
CPA draft of monthly software fees for accounting system: $29 to $100
Monthly salary payment to the owner(s): $3,333 gross pay, $2,722 net to owner after taxes
Monthly shareholder distribution: $2,000
Quarterly personal estimated tax payment (could be federal and state): $900



Predicted savings: $1,988 - $110 (payroll fees) - $29 (acctg system fees) = $1,849 left over savings
Monthly cash outlay:
Monthly estimated federal and state payroll tax drafts on the 15th: $865
CPA draft of monthly payroll service fee: $30 (to pay taxes electronically)
CPA draft of monthly software fees for accounting system: $29 to $100
Monthly salary payment to the owner(s): $3,333 gross pay, $2,722 net to owner after taxes
Monthly shareholder distribution: $2,000


Predicted savings: $2,343 - $30 (payroll fees) - $29 (acctg system fees) = $2,284 left over savings
Monthly cash outlay:
Monthly estimated federal and state payroll tax drafts on the 15th: $865
CPA draft of monthly payroll service fee: $30 (to pay taxes electronically)
CPA draft of monthly software fees for accounting system: $29 to $100
Monthly salary payment to the owner(s): $3,333 gross pay, $2,722 net to owner after taxes
Monthly shareholder distribution: $2,000




Predicted savings: $2,106 - $30 (payroll fees) - $29 (acctg system fees) = $2,047 left over savings
Monthly cash outlay:
Monthly estimated federal and state payroll tax drafts on the 15th: $865
CPA draft of monthly payroll service fee: $30 (to pay taxes electronically)
CPA draft of monthly software fees for accounting system: $29 to $100
Monthly salary payment to the owner(s): $3,333 gross pay, $2,722 net to owner after taxes
Monthly shareholder distribution: $2,000




Predicted savings: $2,047 - $30 (payroll fees) - $29 (acctg system fees) = $1,988 left over savings
Monthly cash outlay:
Monthly estimated federal and state payroll tax drafts on the 15th: $865
CPA draft of monthly payroll service fee: $30 (to pay taxes electronically)
CPA draft of monthly software fees for accounting system: $29 to $100
CPA fee to prepare corporate tax return: $700 to $1,500 (depends on size and complexity)
CPA fee to prepare personal tax return: $300 to $600 (depends on size, complexity and state)
Monthly salary payment to the owner(s): $3,333 gross pay, $2,722 net to owner after taxes
Monthly shareholder distribution: $2,000



Predicted savings: $1,849 - $30 (payroll fees) - $29 (acctg system fees) - $900 (corporate tax return)
+ $110 (added cost to personal tax return) = $1,000 left over savings
Note: As a sole proprietor, a business owner will pay about $19,500 in taxes in this example. As a corporation, a business owner will SAVE about $4,600! Let's track this savings through our timeline.
Thank you
now I understand my
corporation!
Full transcript