Best wishes from MyCorporation during this busy holiday season!

In our final newsletter of 2006, we've assembled some helpful tips and tools that will enable your business to hit the ground running in 2007.

We wish you a happy, healthy and productive holiday season!

Double Tax on Corporate Profits: It Ain't Necessarily So

One of the bugaboos that makes business owners reluctant to incorporate is the fear of a double tax on corporate profits. True, a corporation does pay tax on its taxable income and corporate owners do pay tax again when corporate income is distributed to them as dividends. But many successful incorporated businesses pay little or no tax at the corporate level. Why? Because, after making a variety of payments to their owners—non-dividend payments—the corporations have minimal taxable income. Unlike dividends, these other payments are deductible and reduce a corporation's taxable income.

Let's take a look at some examples.

Salaries
As an employee of your corporation, you are entitled to a salary, just like any employee. And your salary is fully deductible by your corporation as long as it's reasonable. What's "reasonable"? There is no hard-and-fast rule; it depends on your individual situation. While you may not be able to suck every last dime out of your corporation and call it salary, there is a fair amount of leeway. For example, if your business involves personal services, such as consulting, and you are the "heart and soul" of the business, then obviously you deserve a much higher salary than someone who has invested substantial capital in the corporation, but performs little work for it.

In fact, if you are a one-person operation, most of the corporate profits can be attributed to your personal efforts.

Employee benefits
Employees typically receive fringe benefits from their employers, and so should you. For example, your corporation may provide health insurance for you and your family. Or your corporation may make contributions to a tax-qualified retirement plan on your behalf. These expenditures are deductible by the corporation. What's more, unlike a salary, health insurance coverage, retirement plan contributions, and certain other corporate-provided benefits are tax-free to you.

Family Employment
Maybe your family helps out in your business. For example, your spouse may handle the bookkeeping or your teen-age child may do clerical work. In any case, you should consider making them formal employees of the corporation. As employees, they are entitled to salaries and fringe benefits that can be deducted by your corporation. Keep in mind, however, that the family members must provide bona fide services for your corporation. To avoid any problems with the IRS, you should keep detailed records of the type of work the family members provide and how much time they spend on it.

Loans
If your corporation needs money from you, there are basically two ways to handle the cash infusion. One way is to make an equity investment in the corporation. The drawback to this is that any return you get on your investment would not be deductible by your corporation. The alternative is to lend money to your corporation. The advantage of a loan is that the interest the corporation pays you is deductible and, thereby, reduces the corporation's taxable income.

Again, you don't want to overdo things. If you finance your corporation strictly through loans, you are likely to run into trouble from the IRS. A good rule of thumb is to limit your debt-to-equity ratio to three-to-one.

Leasing
Another way to reduce your corporation's taxable income is to lease property to the corporation that is needed in the operation of its business. For example, if your corporation needs a computer, you could lease your computer to the corporation. Another possibility: If you operate your business out of home, you could simply have your corporation lease a portion of your home.

Your corporation will, of course, pay you rent. As long as the rent is not excessive—no more than what it would pay a stranger—the corporation can claim a deduction for the payments. But, to head off any problems with the IRS, make sure you formalize the arrangement. Draw up a written lease specifying the amount of rent charged.

As you can see from the above, incorporating does not have to cost you a lot in taxes. And it doesn't have to cost you a lot of time and aggravation either. MyCorporation makes incorporation simple. To get started, see http://www.mycorporation.com/order.htm.

The Sooner the Better
If you want to incorporate for 2007, you may want to place your order now instead of waiting until January. Many states take up to 12 weeks or more to process filing requests received in January. By placing your order with MyCorporation now, you can move toward the front of the line.

Just select the "delayed filing" option when you place your order. Under this option, MyCorporation will process your filing within 24 hours of order confirmation. Then, your documents will be placed in a queue for filing on or after January 1, 2007.

When Your Business Crosses the Border
In today's economy, the traditional hometown business may no longer be the norm. As your business grows and expands, it may cross borders—both state and national—either literally or figuratively via the Internet. And those interstate and international transactions may require some special paperwork.

Crossing State Lines

Even if your business headquarters stays put in your hometown, new business opportunities may take you across the border into neighboring or far flung states. For example, if you are service provider, you may be called on to work on projects in another state. If your business is selling goods, your search for new markets may turn up customers in other states. Depending on the nature of your services or products, these new ventures may require you to apply for licenses or permits in other states. You may also need to establish new banking and financial relationships across the border.

Moreover, if a particular area turns out to be a "hot prospect" for your services or products, you may decide to physically expand your operations into another state by setting up a branch office. This will generally require you to apply for qualification in that state as a "foreign corporation."

In each of these cases, you will often be asked for proof that your corporation or LLC is in good standing with your home state. A new state will typically ask for such documentation when you apply for qualification as a foreign corporation. What's more, banks, lenders, and issuers of licenses and permits are all likely to ask for proof that your business is legit. And not just any proof will do; they will usually want certified copies of corporate documents that you filed with your home state. They bear an official certification from the issuing state verifying that the document is a true and correct copy of the original document that was filed. Copies of the documents in your office safe generally won't do because they are "plain" copies that don't have an official certification.

That's where MyCorporation can help. You can use MyCorporation to request certified copies of your corporate documents from the Secretary of State of your home state. For more information go to http://www.mycorporation.com/allservices/order/certifiedarticles.htm. We can also assist you in obtaining qualification as a foreign corporation in a new state. Go to http://www.mycorporation.com/allservices/order/fq.htm

Going International
If your business expansion takes you into the international arena, you will have to learn a new term of art: an Apostille. As when you cross state or country lines, government officials, lenders and business partners may require documentation from your corporation or LLC. However, they may require it to be in the form of an Apostille. An Apostille is a documentary device by which a government authenticates a document as genuine and stamps it with a gold seal. Apostilles are a creation of the Hague Convention of 1961. Once a documented is authenticated, the document is "legalized" for use in any of the more than 60 countries that are members of the Hague Convention. Moreover, Apostilles are often accepted as documentation even in countries that are not members.

When dealing with overseas business, always ask whether a foreign government or business will need your documents to have an Apostille. If an Apostille is required, MyCorporation can assist you in obtaining an Apostille or "authenticated" certified copy of a document from any of the 50 states easily and affordably. Just go to http://www.mycorporation.com/allservices/order/apostilles.htm.