Also, venture capitalists and investors usually demand that ISP owners grant them partial ownership or a share of the business. The need for financing creates the obligation to incorporate your Internet business. A S Corporation is a regular corporation that has chosen to be treated as a partnership for Federal income tax purposes. Unfortunately, both the number of shareholders and the types of stock an S Corp may issue limit the ability of this tax classification to protect your businesses profits. Counting matters Even the choice of the method of accounting employed by your ISP will have a significant effect on your tax bill.
Most individuals use the cash basis of accounting based on cash receipts and disbursements.
Income is generally reported for the year in which it is was actually or constructively received. Deductions or credits are generally taken for the year in which the related expenditures were actually paid. It is not the actual receipt, but the right to receive that governs this method of accounting. Plus, if it's time to sell your ISP operation, those using the cash method can report the capitol gain from the sale on an installment basis, which has some interesting benefits. In the past, selling a business in exchange for agreed-upon installment payments usually produced a higher selling price.