Ask Your CPA:
9 Questions to Ask Before You Incorporate

1. Ask your CPA, if you own all the stock, will your corporation be treated as a “personal services corporation” (PSC) and be subject to those high tax bracket rates from the first dollar it earns? And if so, can your spouse hold a percentage of the stock to avoid PSC treatment even if you live in a community property state or file a joint income tax return? What happens if you divorce?

2. Should you issue all the authorized shares of stock upon initially organizing the corporation. Or, should you reserve some shares to issue to future key employees, officers or directors as stock options, incentives or bonuses?

3. To minimize FICA contributions/taxes (Social Security and Medicare), ask your CPA if you can pay yourself a salary that is less than the corporation’s net profit since the difference will be taxed to you ordinarily if you elect “S” corporation tax treatment?

4. For a retirement plan, ask how can you maximize the corporation’s contribution plan to minimize taxes to you as an employee while maximizing the corporation’s write-off for those contributions? What type of plan is best for your situation? A SEP? A 401(k)? An IRA?

5. if the corporation provides you, as an employee, health care coverage, can the corporation deduct the health insurance premiums? Can the corporation reimburse you for your share of out-of-pocket health care expenses, such as, co-payments, prescriptions, deductibles, etc? Can the corporation write off such reimbursements?

6. What are the current requirements for electing the corporation’s fiscal year? Can you use a different fiscal year than the calendar year (ending December 31st)? Are the requirements different if you elect “S corporation” status? What are the advantages and disadvantages?

7. January and February usually are the best response months for direct mail soliciting. If you sell subscriptions, can you use subscription accounting to defer taxes until after the close of your corporation’s fiscal year. For example, to defer income until March and postpone tax choices and consequences?

8. You use (and want to continue using) QuickBooks or QuickBooks Pro for your bookkeeping software. Ask your CPA, is your QuickBooks software compatible with their accounting software? And, do they have a chart of accounts you should use?

9. Ask, how do you transfer corporate stock to your heirs before you die? Explain that you want to minimize inheritance taxes. Are your options limited with an “S corporation”?

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