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Hello Fools!

I am sure glad The Motley Fool e-mailed me and listed this board as an advertisement. I come hailing from the investment boards. I have a question for you guys, any and all opinions would be appreciated.

I am a 21 year old college student who does E-Commerce selling through eBay and my website.

Basically, I have some contracts with big vendors where I can get technology products at a very, very cheap price (below Best Buy and CC's cost). Because of this, I am then able to sell them on eBay and my website for less than retail, and still make a profit.

I recently incorporated my company in New Hampshire in May. Now here are my many questions.. :)

#1.) The company is currently a C-Corp, but I want to transfer it to an S-Corp to have the income pass through. Is there a time limit to file Form 2553?

#2.) I keep all my own financial records through Peachtree (similiar to Quickbooks) and plan to only hire an accountant during tax time to file my taxes. I was referred to him by a good friend and the guy charges $350-500 to file it once every year. To me, this is a good deal, but should I be aware of anything else I have to file in the interim?

#3.) Most of my payments come in the form of PayPal which I do deduct their commissions. Every month I list the total charges PayPal charges me and write it off as a "Payment Processing Expense" in my Peachtree Software. Can I do this without printing every expense one by one since it's recorded electronically and I can have access to it anytime?

#4.) Relates to PayPal. It's currently tied to my personal checking account when I transfer the balance from my PayPal account to a real bank account. Although I do have a Business Checking account at another bank, it does not transfer there. I simply take the funds when it arrives to my personal bank and send it over to my business bank. As long as everything balances out, I won't get in trouble for doing this will I?

The State of New Hampshire doesn't have any sales tax in selling products like these, so I believe I covered what is important, but if I am missing anything, please advise this young boy:)

Currently, I am on track to have $250,000 in revenue and about $40,000 in profits. I have no employees and do not plan so in the foreseeable future. Thanks in advance for any help guys!
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Hang on, you're 21!

I'm sorry, I was nowhere near as organized as you are at 21. Hell I was still drinking my face off in university. Kudos to you.

OTOH, I'm Canadian and can answer none of your questions. ShelbyBoy (and others not so technically inclined) should be able to help you out lots.

Good luck and keep up the good work. Oh, and invest in an IRA or whatever tax free investment vehicle you have down there. You MUST know about the power of compounding.

Simon
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#1.) The company is currently a C-Corp, but I want to transfer it to an S-Corp to have the income pass through. Is there a time limit to file Form 2553?

Its been a while since I looked at 2553; however, 60 - 90 days rings a bell in order to treat the corporation as an "S" from incveption; otherwise you wind up with two stub periods and dual tax treturns; one as a "C" and one as an "S" when the actual election takes effect.

#2.) I keep all my own financial records through Peachtree (similiar to Quickbooks) and plan to only hire an accountant during tax time to file my taxes. I was referred to him by a good friend and the guy charges $350-500 to file it once every year. To me, this is a good deal, but should I be aware of anything else I have to file in the interim?

Filing wise; probably not but for typical business licenses which are likely not be very complex in NH. However, it is probably a good idea to have a 2 - 3 hours sit down with your accountant to make sure you are recognizing revenue at the right times and have a handle on all ordinary & necessary business expenses.


#3.) Most of my payments come in the form of PayPal which I do deduct their commissions. Every month I list the total charges PayPal charges me and write it off as a "Payment Processing Expense" in my Peachtree Software. Can I do this without printing every expense one by one since it's recorded electronically and I can have access to it anytime?

No problem.

#4.) Relates to PayPal. It's currently tied to my personal checking account when I transfer the balance from my PayPal account to a real bank account. Although I do have a Business Checking account at another bank, it does not transfer there. I simply take the funds when it arrives to my personal bank and send it over to my business bank. As long as everything balances out, I won't get in trouble for doing this will I?

It okay, but not preferable. I would change the Paypal routing to deposit directly into your business account. Monies flushing through a personal account is not improper or illegal in any manner; it's just a red flag.

The State of New Hampshire doesn't have any sales tax in selling products like these, so I believe I covered what is important, but if I am missing anything, please advise this young boy:)

You might owe sales tax if your purchaser is also a NH resident.

TheBadger
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Point 4 will get you in trouble if you ever get sued. You should stop it. Your not operatign the company like a company... a decent lawyer can pierce the corporate liability veil should you be sued because of this. Net result is if you were sued, there is a decent likelyhood that someone could come after you personally after they took the companies assets.
Part of the logic behind this, is because the companies money is flowing through your personal account who is to know what is your and what is the companies? Did all the money which belonged to the company reach the company?

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>>Did all the money which belonged to the company reach the company?<<

But isn't that what my good record keeping is for? I keep extremely good records of what I sell and what it cost to determine the profit from that particular sale. As long as the bank balances out at the end of the year with our accounting, all is good right? Or no?

The reason why I do this is because PayPal was originally set for my personal use a long time ago. And in regards to the business bank, they do not have NetBanking where I can access how much money is coming in and out, whereas the personal bank I can.

Thanks for all the replies so far!
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If your sure you will never be sued and not have enough cash to pay for the suit and and award the other side might have then it doesn't matter what your doing. However, If your company goes bankrupt YOU would will be liable for it's debits if anyone does any sort of digging. The legal term "Piercing the Corporate Veil" means BREAKING the limit on legal liability for the owner of the corporation.

Standford lawschool has a PDF on this which I got in 3 seconds of googling which lists 4 ways to pierce the veil.

http://www.stanford.edu/~bblack/corporations/corps_pdf_files/corps-summary20-02.pdf

By using your personal account to move money into your business account you've now got an opening that WILL make you personally responisble for any debits of your business. Plus that you control the whole deal you've got 2 out of 4. Plus, If you don't keep up corporate formalities or keep money in the corporation you have no protection.


My point is simple, by commingling business and person assets you eliminated one of the biggest advantages to having a coporation. It is easier to fix these problems now rather than latter when or if you get in trouble.
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#2.) I keep all my own financial records through Peachtree (similiar to Quickbooks) and plan to only hire an accountant during tax time to file my taxes. I was referred to him by a good friend and the guy charges $350-500 to file it once every year. To me, this is a good deal, but should I be aware of anything else I have to file in the interim?

If your business model is simple enough, you might be able to forgoe the $500 tax accountant and buy TurboTax for small businesses. It basically walks you through all the questions your tax accountant would ask, and since it sounds like you have a firm grasp on your operations, this might save you some $$.

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Standford lawschool has a PDF on this which I got in 3 seconds of googling which lists 4 ways to pierce the veil.

http://www.stanford.edu/~bblack/corporations/corps_pdf_files/corps-summary20-02.pdf

By using your personal account to move money into your business account you've now got an opening that WILL make you personally responisble for any debits of your business.



Unless I missed a portion of the information at that link, I didn't see any direct reference to using a personal account to move money into a business account.

I did see a reference to "commingling of personal and assets."

Has there been a legal ruling that moving money from a personal account to a business account constitutes commingling of personal and assets?


ShelbyBoy
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Standford lawschool has a PDF on this which I got in 3 seconds of googling which lists 4 ways to pierce the veil.

three seconds? Three Seconds! THREE SECONDS?!

Google's main computers must have been down and they must have been operating from some kid's laptop!

Or maybe you factored in the time it took you to type in the query?
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Has there been a legal ruling that moving money from a personal account to a business account constitutes commingling of personal and assets?

I don't think that it would take a legal ruling. Having your personal and business cash in the same account, however briefly and well-documented, seems to me to precisely fit the definition of "commingling."

http://www.m-w.com/cgi-bin/dictionary

1 : to blend thoroughly into a harmonious whole
2 : to combine (funds or properties) into a common fund or stock


¤ Daniel ¤
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...Having your personal and business cash in the same account...


"Having your personal and business cash in the same account" seems to me to be a different thing thant "...moving money from a personal account to a business account..."


ShelbyBoy
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"Having your personal and business cash in the same account" seems to me to be a different thing thant "...moving money from a personal account to a business account..."

I think that if you have to split hairs to win if it becomes an issue, then you've already lost.

¤ Daniel ¤
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I think that if you have to split hairs to win if it becomes an issue, then you've already lost.


Splitting hairs?

"Having your personal and business cash in the same account" sounds like he has one account and conducts both personal and business transactions from that account.


"...moving money from a personal account to a business account..." sounds like it could be some type of transfer.

Doesn't seem to me like it's hair splitting.


ShelbyBoy
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Doesn't seem to me like it's hair splitting.

<shrug> Whatever. I disagree, but it's not my money, it's not my business, and I don't really know for sure anyway since I'm not a lawyer.

¤ Daniel ¤
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Guys,
I think the problem here with piercing the veil argument is:
1. Money is gathered through the use of a Personal PayPal account, which then goes into a personal bank account----this is comingling of accounts.

2. Money goes from a personal account into a business account-----this is not comingled money because it should be treated as a contribution to capital in the business account, or as a loan to the business.

In the case of #1, the corp veil is easily pierced. In #2, it would not be pierced if the incoming monies are termed either contribution to capital or a loan to the business.

Jenn
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Yes, there have been several legal rulings in regards to this very fact.

Laya, 352 S.E.2d at 99.
Labadie Coal Co. v. Black, 217 U.S. App. D.C. 239, 672 F.2d 92, 96-97


If you at a party with a lawyer, or in your lawyers office ect ask them a question about this quickly.

Fixing legal problems BEFORE your in court or close, costs far far less than after your sued. It would cost very little perhaps nothing to fix this issue besides a small amount of time. If you ever wind up in court and this issue come up it would cost thousands to fix.
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#4.) Relates to PayPal. It's currently tied to my personal checking account when I transfer the balance from my PayPal account to a real bank account. Although I do have a Business Checking account at another bank, it does not transfer there. I simply take the funds when it arrives to my personal bank and send it over to my business bank. As long as everything balances out, I won't get in trouble for doing this will I?

How difficult would it be to change your paypal processing to the business account? It would seem that this is much easier than wondering if you're liable in a lawsuit because of the co-mingling issue. Plus, it's 1 step as opposed to several (i.e. transferring all the deposits to the business account)

My .02

Stetson20
"Humor is FREE" (plus no double taxation)
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I just updated my PayPal account. The new rules are that you can have one personal account and then a separate business account. I would suggest doing exactly this.

Jenn
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