sole proprietorship, llc, or...???

[tay lew]

i am curious as to how most folks here classify their businesses: sole proprietorship, llc, partnership, or what, and what are your main reasons why, please? thanks.

 

[njknjk]

I am a sole proprietor b/c it was the one I most easily understood at the time I opened my first practice, and I have fallen into the habit. I am strongly looking at LLC now, and expect to convert the business to that at least next year, if not sooner. When I initially set s.p., it was just little single me with no dependents, no real estate, heck not even any business property! Bu now things are much different and I want to be able to protect my personal life should (god forbid) anything ever go terribly financially wrong.

LLC makes a larger income easier to portion out for tax purposes, as well. In an s.p. the IRS has a habit of determining that all income over expenses is effectively salaried to the owner, and taxes accordingly.

 

[Cj T]

I am also interested in this question, particularly in the difference between LLC, C Corp, and S Corp.

My husband and I have recently bought some property and I'm interested in keeping it safe from any liability. I'm also just curious about the tax process and savings/cost of each. Anyone who can speak about any of those (in relation to the others) would be a great help.

 

[OMG seeds!]

thanks. I still would like to see more responses here.

The reason I am curious is because I have been advised that, unless there is reason to need the legal protection (which an MT needs) of an LLC, sole proprietorship is better/easier. We have always done sp's before, but we really did not know what the heck we were doing (which is also why all of our previous businesses have failed in the long run).

A CPA came to talk to our class today and I had a bazillion questions for him- some of which did not get asked, and some of which did get asked, but not answered- at least, not to my satisfaction. He was on a time frame and I don't have an extra $200 hanging around to spend just asking questions!

My dh has been an ESMT (equine sports massage therapist) since summer of '05. He went to school and got his "people license" last May. Having that license has made a major difference in the business. Now, our oldest son and I are both going to MT school. I will be joining dh in the business when I have my license (not that I am not already 'helping' him run the business' I just can't massage until I get my license); our son will be joining us as an employee.

So we are trying to decide how best to set up the business for after I have my license- leave as a sp (not really an option, since then I would either not be able to work under the company name or would have to be his employee), or set up an LLC with or without the 'election' to be an s-corp.

I was wanting to see what others do.

Particularly marries couples/families who do business together like we are anticipating.

 

[Pompal 09.]

i went from sp to llc for liability reasons only - not for partnership reasons, so i don't have the answers you want. it may help if you had more specific questions. but then again, we're not cpa's, so it might be best to meet with one to make sure you get the information that applies to you.

i was a sp but then when we expanded and i suddenly had 5 employees, i had to change over to llc. i can tell you that payroll taxes are a pain. and if you're planning to do that, but aren't able to do it yourself, you'll need a good accountant anyway.

good luck!

 

[Nas J]

LLCs and S-Corps (or an LLC treated like an S-Corp) both will limit your liability to the assets of the business entity.

Both have different, but beneficial tax treatments of certain business expenses and programs vs. an SP.

Firstly, is you can hire employees, which can be your family members. This allows them to be covered by Health insurance (you can get group rates for as little as 2 people), but more importantly, your employee premium cost is a business expense (pre-tax dollars) vs. after-tax out of pocket expense - but only in the case of an LLC treated as an LLC or non-shareholders of an S-Corp. Plus, you can set up an HRA or HSA with your plan that puts more of the cost on a pre-tax dollars basis.

Same is true for retirement plans. An SEP IRA allows you to contribute up to 25% of an employees comp as a business expense - untaxable to the employee until they take withdrawls. Of course, you have to offer this to ALL qualifying employees, but if they are all family members for now, this is just another way to transfer the earnings of the biz to your family and minimize taxes. Or you can set up a 401K for your biz and every employee can contribute up to $15K per year in pre tax $. Add the company match of 4% of comp and you end up with about $16K tax free in your 401K. This is especially wonderful if your spouse has other employment. You spend that income, but 100% of what you pay out of your massage biz goes into the 401K.

You can also purchase a company SUV. (there is a min. weight limit of which most SUVs comply, this was aimed at spurring investment in delivery and harvesting equip) So long as you title it and pay for it with company funds, you can write off the expense in one year vs. depreciating over the life of the vehicle. In effect, the SUV costs 1/3 less due to the tax shield of the 1 year depreciation.

Same is true for your massage equipment, if the stimulus package passes. To spur investment, the tax code will let you write off the expense in one year instead of over the life - usually 5 years for most massage equip. But not for SPs, only for LLC or S Corp.

Of course, taking advaneforum.xxxe of any of this will have you barred from the Democratic party as these are precisely the types of "tax breaks for the rich and big business" both candidates are pledging to eliminate. Plus, since income from an S-Corp "flows through to the shareholders", any profit will be taxed at personal marginal tax rates, which are scheduled to go up in 2010 unless the tax cuts are made permanent. Don't forget the Alternative Minimum Tax - which has never been adjusted for inflation since it came into being nearly 30 years ago as a way to prvent the rich from avoiding taxes, kicks in at incomes starting around $50,000.

Congratulations, you are now considered "rich" by the political establishment and are fair game to be taxed into oblivion!

 

[CLYDE55]

LLCs and S-Corps (or an LLC treated like an S-Corp) both will limit your liability to the assets of the business entity.

Both have different, but beneficial tax treatments of certain business expenses and programs vs. an SP.

Firstly, is you can hire employees, which can be your family members. This allows them to be covered by Health insurance (you can get group rates for as little as 2 people), but more importantly, your employee premium cost is a business expense (pre-tax dollars) vs. after-tax out of pocket expense - but only in the case of an LLC treated as an LLC or non-shareholders of an S-Corp. Plus, you can set up an HRA or HSA with your plan that puts more of the cost on a pre-tax dollars basis.

Same is true for retirement plans. An SEP IRA allows you to contribute up to 25% of an employees comp as a business expense - untaxable to the employee until they take withdrawls. Of course, you have to offer this to ALL qualifying employees, but if they are all family members for now, this is just another way to transfer the earnings of the biz to your family and minimize taxes. Or you can set up a 401K for your biz and every employee can contribute up to $15K per year in pre tax $. Add the company match of 4% of comp and you end up with about $16K tax free in your 401K. This is especially wonderful if your spouse has other employment. You spend that income, but 100% of what you pay out of your massage biz goes into the 401K.

You can also purchase a company SUV. (there is a min. weight limit of which most SUVs comply, this was aimed at spurring investment in delivery and harvesting equip) So long as you title it and pay for it with company funds, you can write off the expense in one year vs. depreciating over the life of the vehicle. In effect, the SUV costs 1/3 less due to the tax shield of the 1 year depreciation.

Same is true for your massage equipment, if the stimulus package passes. To spur investment, the tax code will let you write off the expense in one year instead of over the life - usually 5 years for most massage equip. But not for SPs, only for LLC or S Corp.

Of course, taking advaneforum.xxxe of any of this will have you barred from the Democratic party as these are precisely the types of "tax breaks for the rich and big business" both candidates are pledging to eliminate. Plus, since income from an S-Corp "flows through to the shareholders", any profit will be taxed at personal marginal tax rates, which are scheduled to go up in 2010 unless the tax cuts are made permanent. Don't forget the Alternative Minimum Tax - which has never been adjusted for inflation since it came into being nearly 30 years ago as a way to prvent the rich from avoiding taxes, kicks in at incomes starting around $50,000.

Congratulations, you are now considered "rich" by the political establishment and are fair game to be taxed into oblivion!

t022