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Trevoryard
10-25-2009, 11:40 AM
Hi All. I am a solo operator and sub-contract very little work out. I have 75% residential and 25% commercial accounts and wonder if I need to become an LLC or S-Corp. I am dba now and have excellent insurance protection and just dont see the need to spend money on becoming an llc or s corp. Are there any tax breaks or anything enticing besides the protection of personal assets?

rob7233
10-26-2009, 12:51 AM
As a Sole prop you and the business are the same along with any assests or liabilities. This also goes for liability exposure. As an LLC you are no longer the DBA company but the company becomes a separate entity which may apply for it's own credit etc. Your SS # is no longer the indentifier for the Federal government. The sub S is an additional option as to how you want to disclare taxes and write off. You really don't get the benefits or the added layer of protection from liability as a single member LLC. Do a google search for services to get one set up and some more help.

Uranus
10-26-2009, 01:07 AM
Check out this site http://www.legalzoom.com/

Look around that site, it can answer most of your questions.

mowerbrad
10-26-2009, 04:49 PM
There are plenty of threads around this site that will help you with a few of your questions and at least give you a good idea of what might be best for you.

Like Rob said, as a DBA your personal assets and business assets become one in the same. With an LLC, your personal and business assets become separated. Being an LLC will help big time if your company is ever sued. In that situation without an LLC your personal assets could be at risk if your insurance doesn't cover everything. So that means you could lose your house, your business, your "toys"...everything! But with an LLC, the most you could lose is your business, so you would still have a house and all your things, just no more business. Typically though, if you have a $1mil insurance policy you won't really have to worry about anything, but if something were to cost you more than $1mil, your personal life is protected.

I highly suggest that you make an appointment with your accountant or with your financial lawyer and talk to them about this. They would know much better than everyone on here.

Ruben Rocha
10-26-2009, 05:28 PM
Agree with all of the above.
DBA may be the least cost up front. But long term is another issue with liability.
The biggest change you will see changing to a corp. will be you become a employee so there is more forms to submit per quarter.
As far as changing I think may find you may need to personally sign for credit for the company until the company has a credit rating.

BlueDog Lawn&Home
10-27-2009, 12:05 AM
As I am also a licensed insurance agent, the protection from suit when you are setup as dba is the concern. A $1 million liability policy per occurrence will be more than you would ever need. However, you can go for one more layer of protection by purchasing a commercial umbrella policy, which is relatively cheap. By purchasing a $1 million dollar umbrella, this policy would protect you/your dba business/all your personal assets by providing another $1 million in liablity if you are sued, exhaust your limits on your commercial general liability policy, and are still in need of additonal coverage. i.e.=this umbrella will not provide any protection until the limits ofyour liability policy are exhausted.

Depending on the size of your business(obviously the larger your gross income is the more liability coverage costs as you become a higher risk) a commercial umbrella can cost anywhere from $300-$1000(if you are paying $1000/year for a commercial umbrella policy, you will not be sweating any longer as you will be making $1,000,000 + per year).

Hope this helps.

rob7233
10-27-2009, 10:26 AM
Hey BlueDog can you adress this question?

I have heard from an industry consultant or two that having such coverage(GL & Umbrella) can and would likely make you a target for a lawsuit if a lawyer was asked to look into the company's assets in consideration to go forward.

Do you think that there is any real truth to that?

I personally think it's a crock but I have been told some horror stories.
I look at it as Risk Vs. Gain.

BlueDog Lawn&Home
10-27-2009, 04:27 PM
I think a lawyer is going to look anywhere for a $$$. Having the coverage can only protect you. I would agree with you in fact that it is a crock of sheeeet! Get the coverage, protect yourself, then let the lawyers fight it out amoung themselves.

Hope this helps.

JayN09
10-27-2009, 04:43 PM
Hey BlueDog can you adress this question?

I have heard from an industry consultant or two that having such coverage(GL & Umbrella) can and would likely make you a target for a lawsuit if a lawyer was asked to look into the company's assets in consideration to go forward.

I was just reading the new edition of my policy contract (looking for changes or exclusions that I should make note of) and thought the following might be helpful to you: "If legal action is taken in a claim again you, we have the right to conduct and control a defense at our expense..." (in the previous, you referred to my company and "we" replied to my insurance company). I imagine my insurance company can afford more lawyers for longer than me, so that may convince another lawyer that it ain't worth his time.

My company is set up as an LLC. It cost me $130 (I think) and I filed on my own. The LLC is setup as a passthrough. Tax time, I fill out Form 1065 (a standard Partnership form) and then pass the Schedule K's on to me and my business partner to include in our 1040. It's quite simple. We used Quicken for the first two years of business. Now we're bigger and have more money moving around, so we have an account.

Hope that helps.

LouisianaLawnboy
10-27-2009, 09:08 PM
Llc. . . . . . .

BlueDog Lawn&Home
10-28-2009, 01:37 AM
JAYN09-

Trying to understand what you mentioned regarding a passthrough. Whenever you can spare a few minutes-Can you provide little more info in beginners language to help me get a better grasp on how that works. I am in the very beginning of getting my business setup and preparing to attack the market once the weather/busy season gets to us(I am from Louisiana so we really dont have winter-cold conditions for too long here).

Thanks for the assistance and information.If you ever have insurance concerns dont hesitate to pass them on to me so I can provide some free advice based on 10+ years in the insurance business.

laird006
10-28-2009, 10:38 AM
blue dog, would I be safe starting my business as a DBA with insurance. I think I will be at first anyway. I plan to be part time until i get fairly busy.

BlueDog Lawn&Home
10-28-2009, 11:35 AM
I cant guarantee that you wont have an incident somewhere in time where no amount of insurance will be enough, but with precaution and common sense, you nor I will ever have that type of problem to deal with.

TO answer your question, I think you will be more than fine with a general liability policy with limits of $300,000 at a minimum, but a $1,000,00 is more preferable (the price between the 2 is probably less than $200/year for normal sized business). I only advised clients in our line of work on coverage limits to carry, and not the best business entity to set their business up as. Obviously an attorney or CPA would recommend an llc or corporation, but no matter how you set it up I would still be giving you the same coverage amount advice.

You are find, but dont hold me to it-(that is a joke).

Good luck-Tommy

laird006
10-28-2009, 11:47 AM
Thanks I was planning on a 1,000,000 dollar policy. Roughly how much would that cost me per year?

JayN09
10-28-2009, 05:19 PM
Trying to understand what you mentioned regarding a passthrough. Whenever you can spare a few minutes-Can you provide little more info in beginners language to help me get a better grasp on how that works.

As a business, I fill out the 1065 form for partnerships (there is probably a separate form if you are a sole proprietor LLC). This form has fields such as Revenue, Payroll Expenditures, etc and figures out the profit/loss of the business. I also declare depreciation on equipment purchased and other relevant fields.

Base on this info, I get a 1065 Schedule K (Quicken fills this out for me, but it could easily be done by hand by referencing back to the original 1065).

When I used the word pass through, what I meant was that at this point in the filing process I have not paid any taxes. Taxes aren't paid by the business (except sales tax and payroll taxes throughout the year), but instead are paid by the Members of the LLC (in my case, the owners). The Schedule K is for all intents and purposes a W-2. I take the Schedule K and use it to fill out a Form 1040 (this is the standard form for reporting income, whether you own a business or work for someone else). At this point, my tax liabilities are accounted for. My first year, I operated at a loss, so when the 1040 was completed I ended up owing no money (I also had a very small salary that year). Last year, I turned a profit, so I paid taxes on it. I believe the money owed was based on "self employment tax" because the income was from self employment.

This is how it works for me in New Jersey. It may be different in Louisiana. I know the Quicken Small Business tax program works for all states, so if your finances are pretty simple, I would recommend using Quicken if you are not ready for an accountant.

woodie1
10-29-2009, 03:54 PM
This is what happened to my uncle he had a lawn care business as a sole proprietor. My uncle and his son grew the business to one of the larger lco in the area. The father got to retirement age and signed the business to his son. The son got married at age 30 and died of a heart attack 3 months later. My uncle was still involved in the business, but because the business was not set up properly. The wife took and sold all of the equipment and sold all of the accounts to one of his competitors and there was nothing he could do about it.

BlueDog Lawn&Home
10-30-2009, 12:22 AM
Not sure how different the insurance costs are up North, but if you were purchasing that policy down in New Orleans, it would cost you $600-$1000 per year. I pay a little over $550 per year, but it was based on sales of $50,000 as I was just starting out and kept that number extremely pessimistic. As it renews, I will have to update that sales number, as the insurance company has every right to request financials if I get sued.