ECN Forum
Posted By: MONOLITH Question for the business owners... - 09/11/04 02:23 PM
Hello all.

I'm in the early stages of incorporating and requesting my EIN #. I'm looking for some advice from the experienced...

In our specific business, did you find it better to be an S type corporation or a C type?

Or does the specific circumstances of our particular business not really matter, and the election type based more on the size (ie: finances) of your company?

I have done mind-numbing research with information available to small businesses in general, but was wondering what people in our specific industry found to be better.

Thanks.
Posted By: George Re: Question for the business owners... - 09/11/04 06:42 PM
You should see your tax advisor. Small differences in your behavior may make large differences in your tax situation.
Posted By: MONOLITH Re: Question for the business owners... - 09/11/04 07:02 PM
Yeah,agreed. I'm actually involved in lengthy conversations with CPAs at other websites. I'm getting a fast and hard crash course in corporate taxes, and my brain is seizing up. [Linked Image]

I was just curious if there was a trend related to our specific industry, and why.

Perhaps those that deal mostly with the low expense/high profit angle of home repair type jobs tend to file one way, while those in the new construction end, which tends to be more upfront costly/lower profit margin might have a different strategy.

Perhaps those sort of things don't even come into play, and the decisions are based solely on actual dollar amounts/tax brackets.

As a new business owner, I'm just curious as to how others went when they first started up. I have a feeling the conscensus will be the S type, at least during the first year or so.

Thanks for any replys.



[This message has been edited by MONOLITH (edited 09-11-2004).]
Posted By: Active 1 Re: Question for the business owners... - 09/11/04 07:34 PM
You did not mention a propritorship. That is my route. If you get biger you can chang your status later. In IL to have a corporation you need to have a leagal representitive listed with the secritary of state every year. Of course their is a charge for this from your attorny. Just like all the corp minuits, share holder meetings, and other papers your attorny can do for you.

I think corps are over rated. They cost more to get started around here. You may be told that the you are not liable for money due but the corp is. I don't believe it is true when it comes to the IRS. A lot of suppliers will want a personl garentee the money will be paid by the owner. That defetes the one selling point of a corp.

Corporations are taxed and then you are taxed on what you put in your pocket. Double taxation on income. You need to have 2 seperate taxes done. One for you and one for the corp.

In case of wrong doing corps are sued instead of the owner. It can take the liability off you personaly. I can't say if can keep a customer from filling a suit against a corp and the emploiee(s) personaly involved. I would say in todays world you can sue anyone for anything. If a corp gos to court here an attorny must represent them.

Like the others said talk to the account and ask some questions. In my oppinion corps are good for attornies and accountants but geared for the very small and honest business.

Tom
Posted By: MONOLITH Re: Question for the business owners... - 09/11/04 11:45 PM
My becoming incorporated is a forgone conclusion. My papers will be back from the state any minute.

I think there are benefits to becoming an official corporation, be it personal legal protection, taxation strategies, or how you appear to potential clients, particularly when moving beyond household repairs and into the arena of construction contracting.

I think anyone who desires to become more than a guy in a van with a ficticious name would eventually have to go this route.

The initial learning curve can be slightly daunting, but with a little dedication to the cause one quickly realizes that attorneys are not needed for neither incorporating, nor organizational duties such as board meeting minutes, company by-laws, stock handling, etc. (unless it's mandated by your state, as you mentioned).

There is an enormous amount of educational materials available in book stores, and online, to allow even the most inexperienced 'ceo' to be up and running in no time.

I think remaining a sole proprietorship would limit the things I see myself doing in the near future.



[This message has been edited by MONOLITH (edited 09-11-2004).]
Posted By: hbiss Re: Question for the business owners... - 09/12/04 01:09 AM
Instead of spending hours on the 'net and in book stores I suggest you spend $100 or so and talk to an accountant about your own circumstances and where you wish to go.

If a homeowner comes here and asks questions about wiring their house the advice would be to hire a professional. I'm giving you the same advice. You can read and research all you want but in the end there is no substitute for a formal education and experience.

-Hal
Posted By: DougW Re: Question for the business owners... - 09/12/04 05:36 PM
Proprietor & Sole Employee here...

I actually got the advice to open my business in this form from a tax guy 0 either state or fed. He said that until I'm doing more than $25k annually in business, or hiring employees (not subbing) and paying unemployment, W/H, FICA, etc, that going with a P&SE would allow me to claim expenses for tax purposes but still get the "legitimacy" of having an EIN / business entity, without the annual filing and recording expenses of a corporation.
Posted By: HotLine1 Re: Question for the business owners... - 09/13/04 03:25 AM
Satrted as a sole proprietor, EIN/TIN.State Reg/SS/MEDI/FED WITH/State With/Sales Tax, and whatever else......

After a few years, and growing...lawyer & acct said "LLC is the way to go"!! Filled out & signed a few forms, do a report annually, pay an annual "fee" to the State.

Best advice, as we tell the HO's call a pro!!

Good Luck!!!

John
Posted By: MONOLITH Re: Question for the business owners... - 09/13/04 12:53 PM
"Instead of spending hours on the 'net and in book stores I suggest you spend $100 or so and talk to an accountant about your own circumstances and where you wish to go."

I agree there's no substitute for proffessional advice. That's why I inquired with you guys. [Linked Image]

One cannot deny though, that in the year 2004, anyone with a little internet savvy can aquire themselves quite an education with the access the global media allows us to not only written materials, but real live human beings, just as you and I are exchanging information right now.

Just to clarify, I did speak to 2 live human CPA's, and another on a business website.

One accountant was adament about going Sole Proprietor, the other said the first was crazy, and I needed to Incorporate. So even they cannot agree. The opinions of CPA's vary as widely as the opinions we have seen here in this thread.

Also, just to not get to far off track, my original posted question was just to get a census of whether those that had incorporated went with S or C type filing. Ironically, in all the posts, that's the one thing not mentioned. [Linked Image]
Posted By: Fred Re: Question for the business owners... - 09/13/04 01:18 PM
Sorry Mono, I've been a sole proprietorship since the start. My brother, who has operated his own buisness since 1967, went to an LLC 5 years ago when he took on his son-in-law as part-owner. LLCs have become popular around here. I don't pretend to understand the pros and cons of corps and LLCs.
Posted By: walrus Re: Question for the business owners... - 09/13/04 07:39 PM
Its near impossible to know all the of the NEC and we work with it everyday. You expect to surf the internet to get the knowledge you need on whether to S or C corp?. Tax codes make the NEC look simple. My advice would be find a live human Lawyer who you trust. Spend some hard earned cash and get the advice you need. If liability is one of the reasons you want to "inc." you better do your homework and get advice from a legal pro. It may be the best money you ever spent.
We are a C corp.

I think you should talk to a tax attorney. Not a CPA, not a regular lawyer, but a lawyer who specializes in tax issues. Ask specifically what you need to do to maximize liability protection. If you don't follow the rules, you will have no liability protection at all.
Posted By: hbiss Re: Question for the business owners... - 09/14/04 04:37 AM
One cannot deny though, that in the year 2004, anyone with a little internet savvy can aquire themselves quite an education...

I can deny it. It's one thing if you are a professional talking to other professionals like we do here but quite another when a layman needs professional advice.

If you were sick would you seek advice on the net? I hope not but there are endless sites that give you just that as well as the drugs you might think you need.

I don't embrace the net the way some of our younger counterparts do who grew up behind a computer. Sure, there is lots of valuable information but lots also that is not so valuable. A little knowledge can be dangerous.

I operate as a sole proprietor but if I were going to incorporate I would certainly consult with my accountant. Yes, I have always had an accountant to handle taxes and financial matters. I wouldn't think of handling them myself or wasting my time on the net. When I need advice I just pick up the phone.

-Hal
Posted By: shortcircuit Re: Question for the business owners... - 09/14/04 09:54 AM
Type "S" corp avoids the double taxation of a "C" corp but still gives you the liability protection of incorporating.

A good book is "Inc. Yourself" by Judith H. McQuown available at amazon.com

shortcircuit
Posted By: Jps1006 Re: Question for the business owners... - 09/14/04 12:20 PM
Come on guys, he's just looking for some supplememntary input. As he said, he is and has been talking to those in the field. At the very least it will help to clarify just which questions to ask his advisor.

I'm an S corp. I did it mainly for liability reasons as well as putting the Inc. after my name. I think it looks a little better. The double taxation is only if you have a profit left in the business. If you pay yourself (or drop into an IRA) all your profit, that is a business expense....no profit.......no tax.
Posted By: MONOLITH Re: Question for the business owners... - 09/14/04 12:49 PM
Thanks for all the replys everyone.

One final thought;

Never doubt your ability to self educate yourself, or the importance of understanding the processes around you that have great impact on your life. Understanding what a 'professional' is doing to you is equally important as consulting one.

I, for one, become uncomfortable leaving important aspects of my life in the hands of others. That's not to say I would not utilize 'experts', I'm merely saying that I at least want an understanding of why they are advicing me the way they are.

Everyone is different.

That's why some men choose to fly fighter jets, while some sit on the couch with a six pack watching Fear Factor.

That's why some men own their own companies, and some do not.

That's why some guys are "Mike Holt", and some guys are eternal apprentices.

Thanks again for all the replys.

Cheers.
Posted By: MONOLITH Re: Question for the business owners... - 09/14/04 09:18 PM
"I'm an S corp. The double taxation is only if you have a profit left in the business. If you pay yourself (or drop into an IRA) all your profit, that is a business expense....no profit.......no tax."

Hey Jps1006, here is something a CPA told me in regards to why a C type can be better than an S type.

The difference is $100,000 being taxed at 15% (C) as opposed to 28% (S).

The difference could mean $13,000.


QUOTE:
"As an example: An owner has a C-corp and his yearly profit is say $125,000 before “fringe benefits” and owner’s salary. Say the fringe benefits such as health insurance for the family, vehicle, retirement plan, etc total $25,000 leaving $100,000 profit for the owner before salary.

If the owner was a S-corp the $100k would all be taxable on his personal 1040 and would be, as I best remember, about the 28% bracket. If the owner has other income he may be in the 35% bracket. Some of the benefits may be deductible but the health insurance probably is under the 7.5% limitation on Sch-A, and therefore not deductible. The insurance is not self-employment type deduction so there is no deduction there either.

As a C-corp, I would have the owner take a salary of say $50k for his 1040 and leave $50k in the corp to pay corp tax on form 1120. The corp pays tax on the first $50k at only 15% and the $50k on his 1040 is in the 15% bracket so the whole $100k pays a tax at the low 15%. The corp can get it’s 15% tax back in later years by taking a deduction for salary when the owner actually takes it out and therefore no double tax.

END QUOTE

[This message has been edited by MONOLITH (edited 09-14-2004).]
Posted By: CJS Re: Question for the business owners... - 09/17/04 06:07 AM
I was a sole-proprietor for years and then went LLC at the advice of my accountant and attorney. No matter what you choose, you can never really protect yourself completely from liability. There's no such thing that it's the "BUSINESS" that did it!
It's YOU ~ the President or CEO or whatever who is liable.
So, really, taxes are the real issue.
Definitely consult with those who know best before deciding. Get to understand the real differences between LLC, INC., and all the rest. Once you do, you'll see clearer what is best for you at this time.

I remember as a sole proprietor all the taxes I was nailed with as I made higher into the 6 figures. The thing about Sole proprietorship is that your DBA is taxed upon profit BEFORE you get a dime! In other words, you don't get to deduct your mortgage interest, your dependants, etc., the DBA is TAXED on PROFIT BEFORE your personal exemptions are included or I should say deducted. This is why, once you start turning decent profits, you have to do something! Get a good accountant and a good attorney. A good accountant will tell you that you need a good attorney to handle it for you.
You want to become an employee of your company so you get a check so that it is a deduction from the company's profit. If you're a SP, you are NOT a deduction! You pay on total profit.
I'm not going to get into it any more than this. There is alot to it and you need someone who can answer everything.
I would start as a C Corporation for the first two years. If your earnings does NOT exceed 75,000 a year. Then be S Corporation. The reazon being, that Once you make about 75,000 or more. Your tax bracket goes up in a hurry. If you Stay C Corporation. You can control your payroll and not pay yourself more than the 75,000 a year. This works for me anyways. Take an Online Course from the IRS http://216.12.134.199/workshops_new/
Posted By: Dave55 Re: Question for the business owners... - 09/18/04 06:23 PM
It's a big decision and you should make it with the advice of a lawyer (and an accountant if you have one). If you don't have one, you will. I did my own taxes as a sole propriotor, but not after incorporating. This is a forum of electricians and you take our advice on legal and tax issues at your own peril.

Dave
© ECN Electrical Forums