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Topic: Looking for advice (Read 712 times) |
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don
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Any one in clusterville had any success in operating a small buissness?
I'm thinking of purchasing some software and operating on a shopping mall kiosk level. This would be in addition to my regular job.
Incorporate? Sole ownership? I'm clueless. Any guidance would be appreciated.
P.s. I dont plan on giving up my day job as an international adult video star just yet.
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Jack
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"Doing Business As"
is what I am doing with my little sideline.
It is a nice easy first step.
Inexpensive way to get a tax ID.
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Todd
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Depends, mostly on the liability potentials for the type of biz you plan to start. As a sole proprietor, you're directly liable, including your personal assets like house, car, etc, for any suit brought against the company. Incorporating provides some level of protection in this.
If you do inc., go Sub-chapter S. Simple, cheap. You can even do it yourself...look for a book series called something like "Incorporate yourself in North Carolina!" -they have one for every state.
But the best investment you'll make is to pop for a short consultation with a lawyer on the legal aspects and one with your CPA regarding which means of flowing profits (do you plan to make money, right?) from the biz into you is best in your particular situation.
Finally, check around for the local chapter of SCORE (Service Corps of Retired Executives) Most chapters offer something like 8 hours of one-on-one advice, free.
Oh, and when the lawyer, CPA and SCORE dude are talking, just listen and take notes. In other words,
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Linda T
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Re: Looking for advice
« Reply #3 on: Feb 16th, 2002, 7:15pm » |
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 Don't run a small business but I am a freelance Paralegal. Here in NY aside from sole proprietorship and incorporation there is a thing called LLC - or Limited Liability Corporation. Not sure its available where you're from, but its worth checking with your atty or accountant.
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What a long, strange trip it's been!
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DonDrake
New Board Newbie
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Re: Looking for advice/LLC/LLP/1120S
« Reply #4 on: Apr 6th, 2005, 6:05pm » |
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For some reason, lawyers are in love with LLCs and LLPs. These are great if you are operating a real estate business. Which means developing real estate or renting real property.
Real property means land and buildings. A backhoe is personal property whether it is used for business or not.
Again, if you own a mountain cottage or a beach house and collect rents on those or if you own land and subdivide it then yes you should form an LLC or an LLP.
Lawyers don't seem to understand the tax problems associated with LLCs and LLPs. Both of these organizations usually file form 1065, a partnership return. The entire net income from these entities is classified as self employment income and is subject to the 15.3% self employment tax _in addition to_ the partner's/member's/owner's personal income tax rate.
If the business nets $80,000, thats an additional $12,140 in self employment (SE) tax whether you took the money or not!
If you incorporate and make the subchapter S election, you will have to file quarterly payroll tax returns, withhold payroll taxes on your own salary and pay unemployment tax on yourself. (If your business has an off season, work only 20 hours/week and collect unemployment during you lean period. Your UE tax rates will be sky high but the money sure does help during the off season). However, in the situation above, if you took $40,000 in salary and a $40,000 dividend (nontaxable since its a S Corp) then your SE tax is $6,120 not $12,140 as it would be with the LLC or LLP. You still will pay federal income tax on the entire $80, 000 just as you would with the LLC/LLP but you avoid $6,120 in SE tax.
With a C corp, you only pay taxes on what you actually take out, but any money accumulated in the corp is the corporation's money not yours, even if you are the only shareholder and if you ever take it out, you will be double taxed. The C Corp paid taxes when it made the money and you will be taxes when you take the dividend and the corporation can't deduct the dividend as an expense. At least the current Congress has decreased the dividend rate to 15%. This tax rate deduction, contrary to public opinion, really helps small, independent business owners and that is more significant than the benefits Bill Gates receives.
One important item to keep in mind with an S corp however, is that the IRS considers individuals who are both shareholders and officers as employees and will expect to see wages, w2s and payroll tax returns. If you do form an S corp, please don't fall into the habit of taken draws and never writting yourself a payroll check. You run the risk of having the IRS (and you local unemployment agency) reclassifying your dividends (draws) as wages and then charging you penalties and interest for failure to file, failure to pay and they can get pretty nasty with payroll taxes.
To recap, use an LLC or LLP if and only if you plan on developing or renting real estate for nearly every other situation, you should create an S Corp.
Best advice is to see a lawyer, but if you know what you are doing you can do it yourself. Your accountant cannot create a business entitiy for you (at least not here in NC) because the bar considers that a legal matter. As an accountant, I can tell you where to go and what to do to create your corp but I can neither do it for you or bill you for it.
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