How is your business set up?

[Lemon Drop]

After 2 years, it's time I actually make my business a legal entity. The problem is, what to do? LLC, S Corp, C Corp, or just stay as a sole proprietor? I want to open a business account with my bank but I can't do that without a Tax ID # (they said I can't use my SSN). I work alone, pay to rent space, and for the immediate future, have no plans to hire employees.

How is your business classified? What are some of the advaneforum.xxxes/disadvaneforum.xxxes you have experienced? Any other suggestions anyone has would be much appreciated!

 

[Ava is Beastin!]

LLC (electing to be treated as a Corp) or S Corp

Are usually the best ways to go.

They offer some tax advaneforum.xxxes you don't get as a Sole Proprietor, particularly in retirement savings.

You should make yourself an employee of your company (your company contributions to withholding taxes now become a business expense)

 

[Captain Claudius]

LLC (electing to be treated as a Corp) or S Corp

Are usually the best ways to go.

They offer some tax advaneforum.xxxes you don't get as a Sole Proprietor, particularly in retirement savings.

You should make yourself an employee of your company (your company contributions to withholding taxes now become a business expense)

RelaxandRejuvenate, which one is the best way to go?

 

[ffl04122007]

hey rebecca!

i'd say the best for you would be a sole proprietor LLC. that's what i did and i think that's what your best bet is too!

we've got to get together soon!

 

[Danabell]

I asked both my business attorney and my CPA this same question a few years back when I was just getting started. Both said stick with sole proprietor. The attorney was not worried about lawsuits, since there has to be a relatively strong case regarding negligence and such on my part if someone were to fall on my property, for example. There also has to be a hope of recovering a certain amount of money (i.e. deep pockets) and MTs aren't really one of the hot professions that always get sued. He said setting an LLC/S corp/c corp is like trying to swat a fly with a car. No need for one. My CPA told me the same thing. It'd cost WAY more money to administer every year, and the tax savings for ppl like us are nil. Some ppl talk about a corporation/LLC providing a "tax shelter" and that is simply not true. (See http://www.daveramsey.com for some VERY sound financial advice. I benefit zero from the plug, it's just a radio show I listen to in my area.) If we were larger businesses with sub-contractors, higher profiles, higher traffic/volume, bigger liabilities, and whatnot, it WOULD make more sense to incorporate, but if we're just one man/woman shows or ICs or whatever, it's cheaper and just as fine to stick with sole proprietorships. For an AWESOME CPA licensed in all 50 states (the one I use) pm me.

Hugs,
~Jyoti

 

[killabunnyo]

I am set up as sole proprietor, at this point. I went to the seminars that the government SBA puts on, and that was reinforced. When the time comes that I can build a home studio (duplex, one side to live, one side for business), I *may* incorporate. Right now, though, I don't have assets to protect. I rent, drive an old car, have old furniture, eat off old dishes....if they want to sue me for it, I don't guess they will get much beyond the payment from the insurance I carry!

Well, the car is in the shop again. They can HAVE the car, and don't have to sue me for it!!!

 

[badspeller]

hey rebecca!

i'd say the best for you would be a sole proprietor LLC. that's what i did and i think that's what your best bet is too!

we've got to get together soon!

Hey Tera!

I know, we do!!! My life has been so crazy right now! And I can't believe it's November tomorrow!

Thanks for your advice, and everyone else too, I think I will stick with the sole proprietor for now.

 

[highshoes]

I respectfully disagree...

The tax advaneforum.xxxes of a corporate entity are considerable.

#1 is retirement savings. You can give yourself up to 25% of your earnings, and it counts as a business expense.

#2 is equipment purchase write-offs. Instead of depreciating your computer, table, hot stones or other capital investments over many years, it is a one time expense which is a great tax break.

#3 is you can make your spouse or other family member an employee of your LLC/S-Corp, pay them a salary and they get the retirement savings benefit too.

 

[Freedom]

I agree with R&R, and would add that even a 1 or 2 person operation could benefit considerably from LLC or S-Corp. If the CPA is saying you there are no benefits or tax savings, I'd look for another accountant immediately.

Especially Jyoti, who plans on expanding her business to become a chiropractor eventually. You should even be looking at C-Corp, due to the ability to set aside money for expansion, tax-deferred, for up to 5(? or longer) years. At the time of expansion, all of those $$ set aside will then become an expense, therefore saving yourself some serious tax burden. The retirement benefits are also significant.

Making yourself an employee of your own corporation and paying yourself a salary gives you some tax and expense advaneforum.xxxes, and as mentioned by R&R, you have the ability to contribute a much higher % of your income to retirement, another huge tax advaneforum.xxxe.

And true, MTs do not often get sued. But I'm not willing to leave my house hanging out there for the taking just in case it ever happens to me. Of course if you have no assets to protect, and if you are living hand to mouth- below the poverty line, then you haven't a need for "tax advaneforum.xxxes."

 

[Gaila]

Here's the link for you EIN (tax id number).
IT takes about five minutes. It'll come in the mail.

Robyn

 

[lovechild]

Especially Jyoti, who plans on expanding her business to become a chiropractor eventually. You should even be looking at C-Corp, due to the ability to set aside money for expansion, tax-deferred, for up to 5(? or longer) years. At the time of expansion, all of those $$ set aside will then become an expense, therefore saving yourself some serious tax burden. The retirement benefits are also significant.

Just a thought on this. I don't know anyones financial situation here, but from what I've seen most people going into chiropractic college are taking on an immense burden, and this may not even be close to possible to do ahead of time. ($$ set aside - mentioned above).

I don't want to speak for Jyoti, but it's hard to tell someone what to do in a financial situation like this.

 

[KatManDingo]

I'm a Sole Proprietor & as a member of ABMP feel well-protected by their insurance policy: $3 million malpractice, another $3 million slip and fall, and yet another $3 million products liability (for example, adverse reaction to a lotion). Also included is legal defense coverage.

I work independently (without employees) and don't carry any debt on my business, so Sole Proprietorship has worked well for me. However, if I was planning to expand, take on employees, invest in a building space (instead of renting), then I would definitely switch to an LLC to protect my house from being attached to business debts. As for retirement, I do put money into an IRA each year, but I can't afford anywhere near 25%, so that's not a consideration for me regarding which business structure to choose. Also, R&R mentioned the benefits of equipment write-offs vs. depreciation. Actually, Sole Proprietors can do write-offs as well under Section 179 deductions. The limit is $100,00/year, which is plenty for my business.

Basically, it just depends on what your needs are. Sole Proprietor, LLC, Corporation -- all are valid options.

If you're thinking of switching from a Sole Proprietorship to an LLC, this article is helpful in detailing all of the hidden expenses of the switch. Doesn't mean you shouldn't do it; just helps for budgeting purposes to know what to expect:

http://www.sahoa.org/solep_to_llc.htm

 

[johnevanwinston]

Thought I'd revive this post instead of starting another...
I'm planning to go down and get a DBA and the form is confusing me.

"Business is to be conducted as (check one):"

I looked for sole proprietorship, and instead found two things that seem to fit the bill: "Proprietorship" and "Sole Practitioner."

So...which one am I? I want to say "sole practitioner" since I practition massage (haha?) but I looked up proprietorship and that has a more legal definition in regards to owning a business title.

Thoughts, anyone?
t017

 

[akhilstar]

Also keep in mind the paperwork requirements of an S-Corp and C-Corp. When I was an S-Corp I was my own employee and had to do payroll taxes and worker's comp. Yes there are tax advaneforum.xxxes, but weigh that against the time required to do paperwork and the aggravation of it.

I'm not sure if there is a way to do "owner's draws" as an S-Corp and get around the employee/payroll factor.

C-Corp adds even more complication to the process and usually until you're bringing in a significant income (not sure what qualifies as that) it's not worth the hassle and additional taxes (you get taxed twice as a C-corp - the corporation pays taxes and you pay taxes on the income you receive).

Currently I'm a single member LLC, which the IRS recognizes as a "non-entity" - everything goes onto my Schedule C.

Lisa

 

[never_say_never]

Also keep in mind the paperwork requirements of an S-Corp and C-Corp. When I was an S-Corp I was my own employee and had to do payroll taxes and worker's comp. Yes there are tax advaneforum.xxxes, but weigh that against the time required to do paperwork and the aggravation of it.

There really is not much difference in the paperwork if you are the only employee. Regardless of if you are an employee of your own S corp or a self-employed person working through an LLC or sole proprietor basis, you still have all the basic payroll tax filings.

As an employee, you have to file your federal and state local taxes either quarterly or monthly. As an owner of an S Corp, you can exempt yourself from Workers Comp and not pay the premiums.

As a sole proprietor, you still have to pay Social Security contributions, Medicare, FUTA. Plus you have your state Self Employement tax and Estimated Income Tax. Then there is the federal Estimated income tax. In some states Estimates are due monthly vs. withholdings for employees being quarterly.

I'm not sure if there is a way to do "owner's draws" as an S-Corp and get around the employee/payroll factor.

Not really. Basically, you are declaring a "dividend" to the shareholders - you. If the IRS considers these dividends are in lieu of salary - eg a tax dodge - they will treat it as income come audit time.

However, if, when you set up your S-Corp, you lend the S Corp money to buy equipment or have other working capital and some cash for expenses, you can pay yourself back the loan. These funds are non-taxable as they are a cash flow event on your financial statements, not an income or expense item. But again, if such repayments are considered in lieu of salary, then you might face some trouble.

 

[Dien]

There really is not much difference in the paperwork if you are the only employee. Regardless of if you are an employee of your own S corp or a self-employed person working through an LLC or sole proprietor basis, you still have all the basic payroll tax filings.

Good info R&R!

I will say though that now I am no longer an S-Corp and instead am a single member LLC, I take owner's draws and do not file payroll taxes.

I do pay estimated taxes quarterly, which is maybe what you meant? Somehow estimated taxes seem like less of a headache than when I was having to do payroll for myself. Having to calculate how much to deduct from each paycheck for fed, medicare, ss, state, city, etc. seemed more of a pain than just paying a predetermined estimated amount. And then having to file quarterly reports on top of that. Although the advaneforum.xxxe is it's more accurate.

Lisa