Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
My wife and her partner have a small S-corp. They mostly sell baskets, and things where they buy product, assemble it, and sell it. They also rep a couple of products in our area. The gift baskets and things are easy tax wise, but I was wondering about 1 part of their sales. On a few of the products they rep, they never see the product. They take orders, thru a credit card, and give it to the company, who ships directly to the customer. When this happens, they then receive a commission, which varies depending on the size of the order. This comes in the form of a check from the manufacturer they rep. My question is, how to handle this for taxes.

This is the first year of the business, and at this point, they don't want to hire an accountant..due to the costs involved. We were planning on using turbotax for business, or taxcut for business.

Do they need to recognize the product at all, or just the income from the commission on the direct ship sales?

Any suggestions on tax software for an s-corp?

Thanks!
Print the post Back To Top
No. of Recommendations: 5
Do they need to recognize the product at all, or just the income from the commission on the direct ship sales?

Just keep track of the cash that comes in and goes out. So in this case, they would only recoginze the commission on the sale.

This is the first year of the business, and at this point, they don't want to hire an accountant..due to the costs involved.

Well, IMNSHO, you've put the cart well out in front of the horse. I consider consulting with an accountant as almost a mandatory step before deciding on the form your business should take. For example, why did they pick an S corp over a partnership or an LLC? Are they aware of the differences in taxation between these three entities?

I freely admit that I am somewhat biased in this opinion, as I am a tax pro that works with a lot of corporate and business returns.

Preparing the tax return is really a minor step in the process. There are some minor compliance points to watch out for, of course. But tax planning is the main reason to hire a tax accountant. And not all accountants are created equal in this area. A lot of them are quite good at individual taxes. Fewer are familiar with business and corporation taxes. The most dangerous are those who only do one or two corporation tax returns each year, thinking that they are really just like doing an individual tax return.

--Peter
Print the post Back To Top
No. of Recommendations: 0
Thanks so much for the reply! I will relay this info to them. When they first started the company, they consulted with a corp tax accountant, who recommended the s-corp. At the time, it was just a small business. They expected a small loss the first year, during setup, and getting all the necessary stuff going. After that, they expected small income. The small loss has happened this year, but things are looking up for next year.

Well, IMNSHO, you've put the cart well out in front of the horse. I consider consulting with an accountant as almost a mandatory step before deciding on the form your business should take. For example, why did they pick an S corp over a partnership or an LLC? Are they aware of the differences in taxation between these three entities?

I wholeheartedly agree. I think you are right they put the cart before the horse...the question now is, how to push a cart! As I noted, they did consult with an accountant on the setup of the corp, and it was recommended to do an S-corp. They also were looking at an LLC, but for tax reasons, the acct (one who does exclusively corp taxes) recommended the S-corp. Beyond that though, I am wondering if the accountant recommended the S-corp, because they would have to hire someone to do the taxes? Do the software packages work for taxes? Thanks for the info to soak on and think about. I'm trying to help out, although taxes are not my strong point, which is why I read this board on the fool everyday...someday I hope to know more!!!
Print the post Back To Top
No. of Recommendations: 2
Do the software packages work for taxes?

There is consumer grade software available for S-Corps (TurboTax and TaxCut both sell them) but neither program is anywhere near as user friendly as their 1040 variants. Both programs assume that the user is quite knowledgeable about the relevant tax law. You can also expect to pay significantly more for the Corp software.

Ira
Print the post Back To Top
No. of Recommendations: 0
Turbo Tax is pretty good, but not great for S Corps.

I would agree with the suggestion to consider regularly using an accountant. A good accountant will challenge you (them) about their business. Just like Peter I am biased. It would be better to spend the money and develop the relationship now, than to be caught playing catch up when the business catches fire.

Based on you small exposition I thought of the following questions:

Are you considering the impact of self-employment tax?

What states are you doing business in?

Are you required to pay sales tax in any of them? What would trigger this reponsiblity?

Are you required to pay income tax in any of them? What would trigger this reponsiblity?

Are you required to register to do business in any of these states? What would trigger this responsiblity?

Based on the facts you gave, these questions may not be of concern right now. From my experience, there may be other facts that would drive this decision.

Best of Luck

DL
Print the post Back To Top
No. of Recommendations: 0
Are you considering the impact of self-employment tax?
Yes, this will be a concern when profits are made. The acct. they talked to did reference that.

What states are you doing business in?
Colorado only, right now, but who knows in the future.

Are you required to pay sales tax in any of them? What would trigger this reponsiblity?

I don't believe they are. They currently get all of their raw product from one distributor, who collects sales taxes. I do believe they will need to check on this in the future though, as they branch out and get products from other sources.

Are you required to pay income tax in any of them? What would trigger this reponsiblity?
Eventually, when income is made, they will pay income tax in Colorado

Are you required to register to do business in any of these states? What would trigger this responsiblity?
Don't know. Good question to check on. They are registered in colorado right now. They will need to check on others if business happens in those states.
Print the post Back To Top