Who’s runnin’ this joint? SF becomes an S-Corp. Hilarity ensues.

Once upon a time, I knew what I was doing.

Last year, being in business as a freelance illustrator and animator was pretty easy. I had a name, a web site, and business cards. I even had an ultra-official, separate bank account under Sparky Firepants Images. Sweet! I was a high-roller.

Then I found out about paying estimated taxes. See, that’s one of those itty-bitty little details you have to go find out (i.e.; nobody tells you just ’cause you bought business cards).

See, if you fill out one of those handy W-4 forms for an employer, they figure all that stuff for you and your taxes are taken out automatically. If you’re self-employed, you’re required to pay quarterly estimated taxes on income. It’s not typically something everyone knows at birth or after graduating high school. As a friend who’s run a salon for a few years said when I mentioned this, “What do you mean, estimated taxes?”

Exactly.

But it was cool because I found out early and got myself all set up as a sole proprietor. I sent in my tax payments every quarter like a good boy and when February rolled around I did my taxes online and got a big fat refund. I overpaid by a lot, but it was better than the alternative.

All was well at Sparky Firepants HQ.

Then I started thinking. Damn it.

I was reading stuff about becoming a corporation. It sounded kind of fun, imagining Sparky Firepants Images, Inc. on letterhead. It was kind of like pretending to be a Corporate Tycoon as a kid. You never did that? Maybe I watched too many of those Disney movies with Alonzo Hawk in them. I was a strange child.

Besides imagining a large glass office building with assistants and a mini bar, I was reading and hearing lots of stuff about taxes, liability, and law suits. It seems there are some nice advantages to operating a business as a corporation. There’s too much to share here and this post is more about my wacky experiences than how to determine your own choice. But here’s a little summary. Don’t worry, Kids. My decision wasn’t based on a Sunday Night Movie or an About.com article.

Most self-employed people in my line of work choose the LLC option. My friend Libby Unwin of LU Graphics chose this. She may be smarter than me, because she’s probably creating art while I’m writing my Articles of Incorporation. It’s simpler but carries some of the same liability benefits.

Is there a Home Depot around here? I need to pick up some ByLaws.

I’ve always been a business do-it-yourselfer. I enjoy figuring out those businessy things that a lot of self-employed people loathe. At the same time, I had no idea what I was getting myself into when I started this project. Kind of like the guy who starts building a deck with a Time Life book, I ended up making multiple trips to the hardware store every time I needed a new tool.

There are lots of options for creating an S-Corp and just as many attorneys that would do it for me. There’s also LegalZoom, a web site that has all kinds of forms you can use so you don’t go to jail for skipping a step. Most of those services are kind of like insurance in that they’re based on fear. Great marketing, though. I was kind of afraid for a while there.

Before I bought a package or hired an attorney to file paperwork, I decided to check out the Oregon Secretary of State’s office to see what they had to say. Lo! Is that an online S-corp registration wizard? Why yes, it is.

I jumped in. Half an hour later, I had an S-Corp. Legally. And I only paid the State for registration. {INSERT CHAIR DANCE}

Apparently I wasn’t done. There are a few things I had to file with the IRS. Then there are some documents I had to prepare to keep my baby S-Corp official.

Thankfully, the IRS has joined us in this century. You can find just about any form and file it online. A little reading, a little searching, but it’s all there.

{INSERT CHAIR DANCE and SPIN}

But I just want to open a checking account.

At the same time I was doing all this, I was looking for a new bank. Apparently my old bank, Washington Mutual, is being digested by Chase. I was kind of okay with this until the day I went in to do some banking and they didn’t have my correct  information in their computer. “Isn’t that funny how computers screw up like that?” said the Chase lady.

No. Well, it’s not funny to me. Maybe that guy behind me in line chuckled while I was defecating in your lobby chair. I couldn’t say.

So I found a new bank and set up my brand-spankin’ new business accounts. It was all good, but apparently they need official stuff from my corporation, like Articles of Incorporation, Board Meeting minutes and ByLaws. Ummm, By—what?

This is where I realized that this thing was getting bigger than just me and my little art biz.

Here’s the thing. I’m just one dude. However, by changing my business structure, I’ve created this Frankenstein corporate entity that suddenly wants things like meetings, a board of directors, share certificates, ByLaws, and employees.

So now instead of being just a dude with an art business, I’m an employee of Sparky Firepants Images, Inc. Turns out I’m like that guy in the rural town that’s the Sheriff, Judge, County Clerk, and Saloon Keeper.

I have to obey laws and be accountable to government agencies and financial institutions.

Damn.

I used to talk about how being an independent business dude was so killer. I started to wonder if I was so independent anymore.

Once again, I bypassed the Getting an Attorney line and put on my research hat. What I found was a whole lot of advice and help on writing ByLaws and creating your S-Corp structure. I even found templates online for writing my annual meeting minutes.

Once I got through all that, I realized that yes, this is more paperwork and learnin’ than I bargained for but I actually felt really good about it. It’s funny, but in a way I really am playing Corporate Tycoon here. So I have to keep records of Annual Board Meeting Minutes, but guess who the Board consists of?

It’s me. Right here. I’m the Chairman, Director, Treasurer, Vice Director, and sole employee. Jenni is the secretary because legally it has to be somebody else, but since she’s in the other room and all I didn’t have to wait long to start the meeting.

I was feeling all proud and smart when the bank called. They needed an actual copy of my Articles of Incorporation, not the piece of paper I gave them.

Panic. What does that even mean?

I called the Secretary of State’s office. The extremely nice guy on the phone told me that I had given them the only thing that I could have.

You mean I don’t have to get something else from you?

Where did you get the form you gave them?

I downloaded it from the Secretary of State web site.

(chuckle) Well, I could send you a copy from here, but it’s $5.00 and exactly the same thing you printed at home.

Seriously?

Yep. You can have your bank call me and I’ll verify it.

{INSERT CHAIR DANCE and STRIP-TEASE}

There you have it. I discovered that sometimes things are just correct even when someone in a big financial institution says they’re not. In other words, I was okay. I wasn’t failing as a corporation and going to jail.

Can I have a raise?

So I’ve established that I like doing pretty much everything by myself without any help at all, so leave me alone and get out. Control freak. Right here.

The one area I was willing to hand over control was in my payroll and taxes. Paying estimated taxes every quarter is like tinker toys compared to S-Corp payroll taxes. Yow.

See, now that this corporation has employees (me), it has to pay them (me). That’s also how I pay taxes now. I don’t pay tax on revenue, I pay tax on my salary as an employee, which means filing a W-4 and all kinds of other tax docs that I don’t even know how to explain right now because, I, well…

…I hired someone else to do it.

I found a local CPA firm and handed over my stuff. They fill out all the paperwork, file my payroll tax docs, and send me reports on everything. Driving away the day I set that up was a humongous relief. All I have to do is send them an e-mail every month with my payroll amounts and they do the rest.

Oh, and I have to write myself a check. That part is like playing Corporate Tycoon again, because I now have this Big Boy check set from my new bank.

Stuff I didn’t consider until it happened

Let’s just say that filing my taxes this year are going to be more complicated. I started getting checks and online payments from projects and products that I sold outside of Sparky Firepants Images, Inc. As in, I filled out a W-4 or W-9 and got paid as an individual. As in, what the hell do I do with this check?

Apparently I now have to start thinking about where the money that comes in should go. Every time. As in, not automatically deposited into my personal checking account because it’s just mine.

The other things that came up this morning in the shower was that I was brainstorming stuff about my new e-book cover design service and realized that it’s totally different from before.

Last year, I would have just set up a web site and collected fees without thinking about where it would go.

Now I have to think about stuff like, does this fall under Sparky Firepants somehow or do I need to set up a new business structure? And, do I have to pay estimated taxes on that income separately from my salary?

Ahh, last year. So simple. So easy.

{CHAIR SPINS TO A HALT}

And this is hilarious how?

Well, it is. When I stand back and look at all this corporate structure stuff, it looks like a lot of silliness. I mean seriously. It’s like living on a Vogon ship.

Standing in the middle of this ridiculous Corporate Tycoon playset, is me. I’m still just one dude.

I’m gonna go make some art now. My boss is yelling at me because I’m always blogging. He’s kind of a dick.