Guide to Managing an S-Corporation

Keep your house in order

Basic housekeeping is a must. S Corps must file articles of incorporation, hold directors and shareholders meetings and keep corporate minutes.

I recommend: Keep your investors updated about company news with Microsoft SharePoint Services. Use Microsoft Appointment Manager to schedule meetings.

Avoid audits

S Corps are often audited due to questions about salary and wages paid to officers in the corporation. Always show some compensation on IRS Form 1120S line 7 where it asks for "Compensation of Officers." The IRS assumes no one works for free. The salary must also be deemed a "reasonable amount." The same goes for salaries for nonshareholders. And yes, an owner-employee must draw a salary and pay payroll taxes.

I recommend: Check Monster.com or Salary.com to compare job salaries in the marketplace. ADP payroll services for Microsoft Office Small Business Accounting 2006 or QuickBooks can guide you through setting up a payroll and tax compliance.

Know the ins and outs of the tax code

Familiarize yourself with the S Corp's tax benefits. S Corps don't pay corporate taxes, but instead the IRS taxes business profits at individual tax rates on each shareholder's Form 1040.

I recommend: Find a good accountant to assist with your tax needs. The CPA Exchange can help.

Managing profits and losses

The IRS states that an S Corp generally passes gains and losses through to the shareholders based on their percentage of ownership.

I recommend: See instructions on IRS Form 1120S to learn how to calculate and report losses. Try Microsoft Money 2006 Small Business to track accounts, finances and invoices all in one place.