S-Corp or LLC for those Indy

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Aug 2, 2007 2:19 am

As I'm in the process of going indy, most people I talk with are recommending the LLC for better liability protection.  Although the S-corp sounds a little better from a tax standpoint with regards to self employment tax.

For those already Indy, which are you using? 

Aug 2, 2007 9:05 am

Sub S corp

Aug 2, 2007 7:12 pm

LLC for me.


Besides, there has been a lot of press about the IRS increasing their number of audits of S-Corps, due to previous tax-related abuses by owners.


My best advice is to talk to an attorney before deciding. There might be some characteristics of your business that might better suit one over the other. That's what I did and I've had mine for over 10 years.

Aug 2, 2007 7:45 pm
GoingIndy????:

As I'm in the process of going indy, most people I talk with are recommending the LLC for better liability protection.  Although the S-corp sounds a little better from a tax standpoint with regards to self employment tax.

For those already Indy, which are you using? 


Not sure if you realize this but you can set up your business as an LLC and choose to be taxed as an S-corp. This way you get the best of both worlds.

Aug 2, 2007 10:22 pm

Thanks for the above posts.  I'm getting together with my accountant Friday and just trying to get a feel for it ahead of time.  Will ask about the llc and choosing to be taxed as s-corp.  That sounds best. 

Aug 2, 2007 10:54 pm

Tell me how an LLC provides any more protection than an S-corp does. From a CPA (not me, but I concur), the LLC is overkill...you're paying for nothing.



It's BS that an LLC provides more protection. I want just one way it does...anyone?

Aug 3, 2007 9:10 am
Indyone:

Tell me how an LLC provides any more protection than an S-corp does. From a CPA (not me, but I concur), the LLC is overkill...you're paying for nothing.

It's BS that an LLC provides more protection. I want just one way it does...anyone?


LLC doesn't really provide more protection than a corporation (S or C) so that argument is not a strong one. What it does provide is more flexibility (e.g. shareholder types). I tend to believe going w/ an S-Corp is enough for a simple business but I know attorneys tend to prefer the LLC option for a number of reasons (yes one of them is that they are pricier than a typical corporation).

Aug 3, 2007 4:07 pm

That's an accurate statement. LLC's do provide some additional shareholder flexibility, but I couldn't see any reason that I'd need it for a simple one-owner corporation .

Aug 5, 2007 3:45 pm

Here's what you need to do.


Buy a ski rental business, say in Vail or Whistler or even someplace that sucks like New England or North Carolina. 


Get two different rental contracts printed--identical except that some have sequential numbers, the others do not.


Have a sign in the shop that says, "Due to fees we must pay our bank, we offer a 5% discount if you pay us with cash."


Now, pay attention to your customers.  If they're standing there with cash money give them a contract without a serial number.  If they're using a credit card they get one of the numbered ones.


When they return the skis throw the unnumbered contracts in the fireplace.


Declare only the income received on credit cards, it will cause the shop to be at breakeven or a slight loss.


Take the summer off and spend the cash you have been collecting all winter.


Paying taxes can really cramp your style if you don't watch out.

Aug 7, 2007 10:32 am

The main reason I did not go LLC when i got started was that there is a requirement that you declare your intention in the local newspaper.


I thought it might kill the element of surprise if someone saw Whomitmay's Concern LLC declaring itself a month or so before I had left the wirehose.


Aug 7, 2007 1:22 pm

That must be a state by state thing...I've never seen such a notice here...


...and yes, that would probably get the attention of your BOM...

Aug 7, 2007 11:02 pm

thanks for the replies.  going to consult attorney as well. Just wanted to get a feel for it before hand.  

Aug 28, 2007 12:47 am

I have consulted (each year) with my CPA and Attorney.  I am still a sole Proprietor.  I know of another rep who just changed back from LLC to Sole Pro.  Cali broker

Aug 28, 2007 11:56 am

You might want to ask a different CPA then.  Besides the obvious liability protection, an S-Corp. allows for a significant reduction in self-employment taxes.  That's just a couple of benefits off the top of my head.  The LLC itself is not a tax advantage if done within a sole prop.

Aug 28, 2007 11:16 pm
Indyone:

You might want to ask a different CPA then.  Besides the obvious liability protection, an S-Corp. allows for a significant reduction in self-employment taxes.  That's just a couple of benefits off the top of my head.  The LLC itself is not a tax advantage if done within a sole prop.


Trying to save on self-employment taxes by going s-corp is begging for an audit and potential fine.  If your corp has profits of 200k and your salary as the owner is only 40k - it won't fly.  The IRS wants "reasonable" compensation for the owner.  This would be over 100k for a 200k profit business; so no self employment tax benifit.


Also, if going Indy to a b/d you can no longer have payments directed to LLCs or Sub S or Cs.  Has to be paid sole proprietor.  In this case there is no liability protection for either structure unless the corp/llc has significant assets (retained earnings, office equip, etc.).  Best bet is to always have a large E&O policy and supplemental personal liability policy.  Not a bad idea to have business continuation insurance as well.


If you go RIA you can choose whatever structure you want so long as it meets your tax and liability protection goals.  Most of the large single owner firms I've come across use S corp.  Most of the partnerships I've seen are LLC(P).  A structure I like is an S corp with the primary shareholder being another corporate entity.


Good luck on the move.

Aug 28, 2007 11:50 pm
brandnewadvisor:
Indyone:

You might want to ask a different CPA then.  Besides the obvious liability protection, an S-Corp. allows for a significant reduction in self-employment taxes.  That's just a couple of benefits off the top of my head.  The LLC itself is not a tax advantage if done within a sole prop.


Trying to save on self-employment taxes by going s-corp is begging for an audit and potential fine.  If your corp has profits of 200k and your salary as the owner is only 40k - it won't fly.  The IRS wants "reasonable" compensation for the owner.  This would be over 100k for a 200k profit business; so no self employment tax benifit.  Wrong.  You may max out FICA, but medicare is forever.  2.9% on the extra $100K is a tax savings of $2,900...well worth the effort.  Reasonable salary is also not as cut and dry as you might think.  More employees, among other factors, can justify a lower percentage owner salary.


Also, if going Indy to a b/d you can no longer have payments directed to LLCs or Sub S or Cs.  Has to be paid sole proprietor.  Yes and no.  Mine is paid into a brokerage account and then immediately ACH'd into my corporate checking account.  In this case there is no liability protection for either structure unless the corp/llc has significant assets (retained earnings, office equip, etc.).  Best bet is to always have a large E&O policy and supplemental personal liability policy.  Not a bad idea to have business continuation insurance as well.  Absolutely, I would not operate W/O E&O coverage.


If you go RIA you can choose whatever structure you want so long as it meets your tax and liability protection goals.  Most of the large single owner firms I've come across use S corp.  Most of the partnerships I've seen are LLC(P).  A structure I like is an S corp with the primary shareholder being another corporate entity.


Good luck on the move.

Aug 29, 2007 10:31 am

talked with attorney and CPA, both suggested the S-Corp. 

The indy paycheck which will come to me can be transferred to the corporate account and then I will take a salary each month from that account.  It is an extra step, but allowable. 

Aug 29, 2007 3:17 pm

That is exactly how it works.  LPL deposits directly into my S corp and I tag it as service revenue.  I loaned the corp all the money for startup and buildout on the building, furniture etc...to a tune of 32k.  At a later date, I will be able to have this money paid out to me, with interest for the usage.  I pay myself 5k per month for 60k a year.  I will then pay a bonus at the end of this year, if I can show a profit.  If not, it will have to be next year.  My CPA figured out the pay, based on what I would generate as revenue because, as what others have posted, the IRS wants a minimum paid to owners.  Next year, I hope to establish a 401k plan for myself and assistant.

Aug 30, 2007 5:16 pm

if you have dotted your i's and crossed your t's their is no reason to protect against liability... and if you have a thriving business incorporating does not help your taxes without waving a red flag for taxes.  If your firm earns $110,000 incorporating makes little sense.  In this example you should take $100k in salary and pay the remaining 10k as dividend... very little tax savings... should you make more than $110k your just asking the IRS for trouble if your dividend is lop sided.  I have been told that a lop sided dividend could be paid if there are multiple revenue generators (several brokers who's commissions are paid into the same corp).  I am a sole prop. JB- CNA

Aug 30, 2007 5:21 pm

BTW, not opposed to incorporating, just passing on what my tax and legal council have told me.  I think if i was an RIA myself (as opposed to working under LPL RIA) I would incorporate.  -JB