There are three categories of business: small, medium, and large. A small business corporation can be defined as having a stock value of under $1 million at its inception and annual gross income of less than $2 million. There are several reasons why a business owner would choose to incorporate. The most common reasons cited are to protect personal assets from lawsuits filed against the business, to save on taxes, and to obtain contracts from companies that prefer to do business with corporations. It is perfectly legal for an individual to own several corporations as long as those corporations are involved with legal transactions and those transactions are clearly reflected in their books and records.

Income and deductions of a corporation are reported on the basis of the annual accounting method and period used by the corporation in keeping its books. There are two general methods of accounting, the Cash Basis and the Accrual Basis. If your corporation uses the Cash Basis Method of Accounting, it should report income in the tax year it was received and deduct business-related expenses in the tax year it was paid. If your corporation uses the Accrual Basis Method of Accounting, it should deduct business-related expenses in the tax year those expenses accrued.

Your corporation can file its tax return as a Calendar year taxpayer, a 12-month period beginning January 1 and ending December 31, or a Fiscal year taxpayer, any 12-month period ending on the last day of the month except December. S corporations are calendar year taxpayers. C corporations can choose a calendar or fiscal year to file the end-of-year tax return.

New Clients: What We Will Need

1. A copy of the last corporation tax return filed with the IRS.
2. The filing receipt you received from the state where the business was incorporated.
3. The corporation's federal Employer Identification Number (EIN) obtained from the IRS and the State Identification Number from the state where it was incorporated.
4. Documents filed and accepted by the IRS and the state if the corporation has elected to file as a subchapter S corporation.
5. A copy of your state sales tax certificate.

Information We Will Need Each Year

1. Gross income received from all sources including forms 1099 received from other companies for subcontract work that your corporation has done for them during the tax year.
2. Interest earned on your business savings, investment, and checking account(s) during the tax year.
3. Income from other sources received during the tax year.
4. Copies of Forms W2 and W3 employees payroll information.
5. Copies of Forms 1099 showing the amount that you paid to subcontractors and others that worked for you. You paid them with with cash or checks and you did not withhold tax from their pay, therefore, you would not receive a tax break for the amount of money that you paid them if you did not report what you paid them on Forms 1099 (employees vs. independent contractors).
6. Copies of sales tax returns that you filed with your state sales tax department and the cancelled checks or credit card statements showing proof of payment.
7. Capital assets (property & equipment) purchased.
8. All business-related expenses that the company has paid or incurred during the year.

All the expenses that the corporation incurred during the tax year may not be fully deductible in the year they were paid or incurred. Some of these expenses may have to be amortized/prorated over several years in accordance with the internal revenue code (expense vs. expenditure). The Internal Revenue Service (IRS) and the Securities Exchange Commission (SEC) are carefully monitoring this area following the accounting shenanigans at almost every corporation, including Enron, Worldcom, Global Crossing, etc.