Taxing Matters

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4 min read

This story appears in the November 1998 issue of . Subscribe »

Q: I own a subchapter-S employment agency. I plan to start a small animal shelter. What are the advantages of making it part of my company? I am concerned about tax-deductible sales and nonprofit donations.

A: Provided by Carol W. Thompson, EA, a nationally known author and seminar instructor in the tax field.

Adding dogs to your agency could have the IRS barking up a storm over mixing for-profit and nonprofit companies.

A partnership, for two or more owners, reports income or loss to each partner on a Form K-1 that goes to Schedule E of the 1040. A C corporation (C-corp) has unlimited owners and pays its own taxes; its working owner receives a salary.

A subchapter-S corporation (Sub-S) is a hybrid of a partnership and a corporation, with limitations on the number of shareholders. The owners are on payroll; at year-end, net income or loss is reported on their personal returns via a K-1.

Your concern is raising money to run the shelter. Only donations to a 501(c)(3) or nonprofit corporation are deductible to the donor. Each year a nonprofit has income exceeding $25,000, it must file a special tax return with the IRS (and most states) to maintain nonprofit status.

Your Sub-S corporation is for-profit and has tax liability. If you mix your books, it will be difficult to keep expenses separate.

For information on becoming a nonprofit, call an enrolled agent (EA), a tax specialist licensed to represent taxpayers before the IRS. Look in the Yellow Pages under "Tax Preparation," call (800) 424-4339 or visit the National Association of Enrolled Agents at

Q: I'd like to start my own cyberspace mall, but I don't know how to begin.

A: Provided by Joyce Flory, Ph.D., a Chicago Internet and marketing communications consultant, speaker and co-author of The Online Business Atlas (Irwin Professional Publishing, $24.95,

First, study the competition. A good starting point is The Awesome Mall of the Internet (

Next, examine your options. Many online malls handle transactions, allowing users to make purchases from several vendors at one location. If you don't want to handle transactions, your mall can function as a clearinghouse, where vendors who already have Web sites buy listings so customers can find out about them. Cybermall2000 ( is one such mall.

Clearinghouses charge monthly service fees for services like storing content files, managing clients' e-mail accounts, registering domain names and collecting site statistics. If you handle transactions, you'll charge vendors monthly fees ranging from $35 to several thousand dollars for secure e-commerce, shopping-cart software, password protection, database access and the like.

You'll also want to charge setup fees (perhaps the equivalent of one month's service). Offer discounts for long-term contracts; you might insist on a minimum one-year contract.

To accept credit cards, investigate verification services provided by VeriSign Inc. ( To deal in a new currency called e-cash, research companies such as DigiCash Inc. ( or CyberCash Inc. ( Or check out complete online transaction services like CyberSource Corp. ( and Wave Systems (

Hardware and software costs vary widely. Study how comparable malls do transactions, and talk to a technical expert to make sure your server, software and bandwidth work together.

Affordable e-commerce software programs are available from Breakthrough Software Inc. (, Netscape ( and iCat Corp. (

Once your mall is up and running, use services like Submit-It! Online (, which announce your Web presence to search engines so you can be listed on their sites.

Contact Sources

Joyce Flory, (312) 944-3654,

Carol W. Thompson, (831) 373-0553

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