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The landscaper
01-31-2005, 03:30 PM
Are there downfalls of setting up my business as a LLC? Do any of you have your businesses set up like this and is it working out?

rodfather
01-31-2005, 03:42 PM
Been LLC for a number of years now...I suggest you speak with an attorney to see if it's right for you, good luck.

Lawn-Scapes
01-31-2005, 03:51 PM
Speak with your accountant. I am lucky to have a good friend who's an accountant. He set me up as an S Corporation. He explained why but I couldn't (or didn't really want to) follow along with what he was saying. I believe what he told me was.. there were better tax advantages (for me) going this route. So do yourself a favor and find a good accountant and discuss it.

The landscaper
01-31-2005, 05:09 PM
Im trying to read up on each of them a little bit, but thats alittle confusing in itself

captaingreen
01-31-2005, 05:29 PM
My accountant gets frustrated when guys come in to do their taxes and she asks how they are taxed, they say 'I'm an LLC', then she says 'yes, but how are you taxed?' I am an LLC, but for tax purposes I'm a subchapter S-corp. Definitely talk to an accountant before you decide. It's also important to mention that laws vary from state to state, so despite what someone may say on this site, it can vary in your area. Good luck :waving:

The landscaper
01-31-2005, 06:37 PM
Does anyone know what the differences are in the LLC and the S-corp. I just read about how the LLC is still taxed like sole, partner, or corp. Thanks

MMLawn
01-31-2005, 06:54 PM
My company personally is an LLC and I wouldn't have it any other way. BUT what you really need to do is a SEARCH on here as there are hundreds of threads on this very topic (normally weekly even) that have tons of info.

As to how a LLC is taxed is up to how you set it up with the IRS. It can be taxed as a sole prop or as an S-Corp (which I personally would not do because you lose the advantages of a true LLC so you just as well should go INC, but others as a LLC do file that way and swear by it). Also since you are only 19 the bigger question is do you even really NEED to Incorporate yet at this point? ARe you Full Time? Do you make "real" money at this? Do you have more than 2 employees (other than yourself) and do you have more than say $75K of personal unincumbered assets you need to protect? Do you have General Liablity Insurance? If these answers are yes to all of these then you probably do want to but if they are no you are probably better off remaining as a Sole Prop. Just Incorporating to say that you are an INC or a LLC and no other reason would be stupid at best.

rodfather
01-31-2005, 06:58 PM
Good advice Mike...you're a smart cookie :)

Lawn-Scapes
01-31-2005, 07:12 PM
Mike,

What are the true advantages of an llc (that you would loose as an inc) you speak of?

The landscaper
01-31-2005, 08:12 PM
Thats what I was asking, I am not sure what the advantages and disadvantages are between LLC and S-corp.

My reason for doing so is. I am getting into a partnership and want the personal protection. So instead of getting the partnership, I wanted to get into a s corp or LLC

Thanks for you help.

Bushwhacked
01-31-2005, 11:28 PM
LLC or S-corp, www.irs.gov has a little online video that I watched just the other day. It explains business structures such as these LLC, partnerships, s-corps.
From the home page, select on the bottom left, Businesses, then under related topics select "Starting a Business", then under related topics again, select "Small Business Workshops",when the window opens up in the 1st paragraph click on "online classroom", when the next window opens click on the highlighted "Video Streaming" it will open a window. The section with the info you want is under Business Structure. It should be a guy talking.
From what I gather LLC is more of a State/legal liability thing that seperates your personal assets from the business in case of a lawsuit. He will tell you in the video to check with a professional to see what best suits your situation.
I am not a professional.....but I did select the LLC. Also, I ordered the CD-ROM with this video on it , it is free.

MMLawn
01-31-2005, 11:53 PM
Mike,

What are the true advantages of an llc (that you would loose as an inc) you speak of?

Tom, with an LLC you as the owner avoid the "Double Taxation" issue that owners of an INC face.

MMLawn
01-31-2005, 11:54 PM
Good advice Mike...you're a smart cookie :)


Rod, my wife calls me a Dough Boy is that the same thing :D

jpmako
02-01-2005, 09:26 AM
Tom, with an LLC you as the owner avoid the "Double Taxation" issue that owners of an INC face.


S Corps do not get double taxed.

MMLawn
02-01-2005, 10:06 AM
S Corps do not get double taxed.


YES, my friend they do. In an S-Corp that is filed as a INC and not a LLC you as the owner are paying taxes on your salary each time you cut a paycheck and again being taxed on that same amount as income for the S-Corp itself as corp taxes, where in an LLC you only pay taxes on that money one time either when you draw it out as owner or at years end as profit (if it is).

Tifeagle
02-01-2005, 10:28 AM
Go to the Ohio Secretary of State's website and you'll find a complete listing of legal entities describing their tax responsibilities and liability concerns. The site will familiarize you with the options you have and will make your meeting with an accountant or lawyer more productive. You may also obtain your Articles of Incorporation from friend who owns a similar company and substitute personal info (name, address, corporate name, etc.), and send them to the Sec. of State for a $100.00 filing fee and buy your seal and book for around $50.00 from a local shop and you'll save about $500.00 in accountant/lawyer fees. They prepare your paperwork the same way, except they charge $125.00/hr. But thats just me and the way I did it. Also, be prepared to be bombed by the IRS every couple of months with tax documents, booklets, and all kinds of things to assist your accountant in obtaining the money you worked so hard for while he was in the A/C all day looking at playboy.com!!!!!

captaingreen
02-01-2005, 10:32 AM
YES, my friend they do. In an S-Corp that is filed as a INC and not a LLC you as the owner are paying taxes on your salary each time you cut a paycheck and again being taxed on that same amount as income for the S-Corp itself as corp taxes, where in an LLC you only pay taxes on that money one time either when you draw it out as owner or at years end as profit (if it is).
It amazes me how much confusion there is about business structure on this site. We are arguing something that can vary state to state, just as minimum prices, and how many scrubs pee in the customers landscaping vs. in the back of their camper shell. I'm an LLC, subchapter S-corp. and I am not double taxed, and still have the liability protection of an LLC.

marko
02-01-2005, 11:01 AM
My attorney and CPA did not hesitate to say Sub S corp. I think there are alot of differences tax wise, and for the disposition of the company when you sell/disolve. Here is a link with what looks to be "basic" differences.

http://www.clickandinc.com/llc_vs_s_corp.asp

Just a note. My attorney said to not think my personel property was safe in a major lawsuit with either LLC or S or C Corp. I had always thought that was why you did it. He said to make sure that you are protected by a good insurance policy.

Mueller Landscape Inc
02-01-2005, 11:41 AM
YES, my friend they do. In an S-Corp that is filed as a INC and not a LLC you as the owner are paying taxes on your salary each time you cut a paycheck and again being taxed on that same amount as income for the S-Corp itself as corp taxes, where in an LLC you only pay taxes on that money one time either when you draw it out as owner or at years end as profit (if it is).

This is wrong. An S corp is a pass through entity.

Please review this link and do a search as well...
http://www.microsoft.com/smallbusiness/issues/business_startups/business_plans_entities/more_pros_than_cons_to_becoming_an_s_corporation.mspx

jpmako
02-01-2005, 12:58 PM
YES, my friend they do. In an S-Corp that is filed as a INC and not a LLC you as the owner are paying taxes on your salary each time you cut a paycheck and again being taxed on that same amount as income for the S-Corp itself as corp taxes, where in an LLC you only pay taxes on that money one time either when you draw it out as owner or at years end as profit (if it is).


NO MY FRIEND THEY DO NOT.
In my state (NY) I am a legal corporation that filed for sub-chapter S status.

Here is what that means in the NY Corporate world:

Subchapter C corporations include most large, publicly-held businesses. These corporations face double taxation on their profits if they pay dividends: C corporations file their own tax returns and pay taxes on profits before paying dividends to shareholders, which are subsequently taxed on the shareholders' ndividual returns.

Subchapter S corporations meet certain requirements that allow the business to insulate shareholders from corporate debts but avoid the double taxation imposed by subchapter C. To receive subchapter S treatment, corporations:

must be domestic;
must not be affiliated with a larger corporate group;
must have no more than thirty-five shareholders;
must have only one class of stock;
must not have any corporate or partnership shareholders; and
must not have any nonresident alien shareholders.
Additionally, after a business is incorporated, all shareholders must agree to subchapter S treatment prior to electing that option with the Internal Revenue Service. The limitations imposed by the subchapter may affect the transferability and marketability of corporate shares.


I did my homework and talked not only with an attorney but also with my CPA. I paid them good money to help me make the right decisions for my company.

Also as told by my attorney Being a Corp vs LLC or DBA does provide more coverage as far as personal asset protection in this wonderfull state of NY.
But that should not be an excuse to not carry Business Liability Insurance.

Just my 2 cents, :waving:

Jason

captaingreen
02-01-2005, 01:21 PM
JP, sounds like you did your homework, good job. Maybe if everyone did some research and had their facts straight before they posted there would be alot less arguing on this subject. :waving:

jpmako
02-01-2005, 01:36 PM
I agree 100% :cool2:

MMLawn
02-01-2005, 01:46 PM
This is wrong. An S corp is a pass through entity.

Please review this link and do a search as well...
http://www.microsoft.com/smallbusiness/issues/business_startups/business_plans_entities/more_pros_than_cons_to_becoming_an_s_corporation.mspx

No John I am afraid it is not incorrect. Below is taken directly from your post link and is the double taxation to which I refer is in bold. YOU as the owner of an S-Corp are both the employee and employer and you MUST by Federal Law pay ourself what the IRS considers a "fair" salary (also in your link). In other words your company as an S-Corp cannot make $250K and you only pay yourself $15K in salary and allow the rest to "pass through". That would fail and audit (also in our link) and you would pay taxes on it as salary. Where as with an LLC I can pay myself any amount I wish as I pay taxes at the end of the year on any profits at that point but at the Sole Prop rate thus avoiding the double taxation of salary issues.

JP, I know nothing about NY State laws and I have thus not referred to any "State" laws because we all know those are different. Everything I am referring to is Federal Law as it relates to a properly formed LLC.

For example, a shareholder/employee receiving $55,000 in salary and another $20,000 as his or her share of profits would pay only an income tax on the $20,000. (Of course, <b>the employee and employer</b> are subject to employment taxes on the full $55,000 of salary.)

MMLawn
02-01-2005, 01:47 PM
Maybe if everyone did some research and had their facts straight before they posted there would be alot less arguing on this subject. :waving:


FOR SURE.... :cool2:

Mueller Landscape Inc
02-01-2005, 01:58 PM
No John I am afraid it is not incorrect. Below is taken directly from your post link and is the double taxation to which I refer is in bold. YOU as the owner of an S-Corp are both the employee and employer and you MUST by Federal Law pay ourself what the IRS considers a "fair" salary (also in your link). In other words your company as an S-Corp cannot make $250K and you only pay yourself $15K in salary and allow the rest to "pass through". That would fail and audit (also in our link) and you would pay taxes on it as salary. Where as with an LLC I can pay myself any amount I wish as I pay taxes at the end of the year on any profits at that point but at the Sole Prop rate thus avoiding the double taxation of salary issues.

JP, I know nothing about NY State laws and I have thus not referred to any "State" laws because we all know those are different. Everything I am referring to is Federal Law as it relates to a properly formed LLC.


All business pay employment taxes. I think you need to do a lot more research because you do not understand what you are talking about.

Mueller Landscape Inc
02-01-2005, 02:04 PM
Self employment tax is the 7.5 from the employer and 7.5 from employee. Same for LLC but you pay both sides just like a sole prop. Double taxation is when the corp is taxed on profits before dividends, then investors are taxed again on dividends. This is different from self emp tax with which you are referring.

jpmako
02-01-2005, 02:12 PM
All business pay employment taxes. I think you need to do a lot more research because you do not understand what you are talking about.


John,

Thank You.
Here is a little more info on Employment tax

A major factor that differentiates an S corp from an LLC is the employment tax that is paid on earnings. The owner of an LLC is considered to be self-employed and, as such, must pay a "self-employment tax" which goes toward Social Security and Medicare. The entire net income of the business is subject to this tax at a rate of 15.3%.
In an S corp, only the salary paid to the employee-owner is subject to employment tax. The remaining income that is paid as a distribution is not subject to employment tax under IRS rules. Therefore, there is the potential to realize substantial employment tax savings.

Hope this clears some of this up.

Jason

Mueller Landscape Inc
02-01-2005, 02:17 PM
John,

Thank You.
Here is a little more info on Employment tax

A major factor that differentiates an S corp from an LLC is the employment tax that is paid on earnings. The owner of an LLC is considered to be self-employed and, as such, must pay a "self-employment tax" which goes toward Social Security and Medicare. The entire net income of the business is subject to this tax at a rate of 15.3%.
In an S corp, only the salary paid to the employee-owner is subject to employment tax. The remaining income that is paid as a distribution is not subject to employment tax under IRS rules. Therefore, there is the potential to realize substantial employment tax savings.

Hope this clears some of this up.

Jason

Yes, that is exactly right!

jpmako
02-01-2005, 02:28 PM
You mean I did not completely waste all of that money seeking the advice of my CPA and Attorney? Damn I thought I was going to get some money back payup



Jason

Mueller Landscape Inc
02-01-2005, 02:32 PM
You mean I did not completely waste all of that money seeking the advice of my CPA and Attorney? Damn I thought I was going to get some money back payup



Jason

I hear ya!!! :waving:

MMLawn
02-01-2005, 03:15 PM
John,

Thank You.
Here is a little more info on Employment tax

A major factor that differentiates an S corp from an LLC is the employment tax that is paid on earnings. The owner of an LLC is considered to be self-employed and, as such, <b>1) must pay a "self-employment tax" which goes toward Social Security and Medicare. The entire net income of the business is subject to this tax at a rate of 15.3%.</b>
<b>2)In an S corp, only the salary paid to the employee-owner is subject to employment tax. The remaining income that is paid as a distribution is not subject to employment tax under IRS rules.</b> Therefore, there is the potential to realize substantial employment tax savings.

Hope this clears some of this up.

Jason


1) SURELY, you can't be that naive as to "employment taxes"? Or either you are your only "employee" and don't have an employee payroll outside yourself, so you don't understand how a payroll with employees works one. You are trying to compare apples to oranges on this, or as a good lawyer will do is trying to get someone chasing rabbits. This amount of 15.3% is what is paid on any type of payroll! The only difference is that when you are working for someone else, say Home Cheapo as only an employee, THEY are paying half of the SS and Medicare and YOU the other half. When you own the INC, LLC or what ever you are just paying it ALL on YOURSELF, even if "your" INC that you own is paying it because YOU own it and it is YOUR money and then as we all are you are also paying half of the 15.3% on ALL the rest of your employees. It is the same amount of taxes only paid differently!

2) ALL that is saying is what I said above. That on all the rest of the non-owner(s)...employees that half of the 15.3% comes from their pay and you as the owner/company/INC/LLC at taxed/pay the other half and it all still equals the same 15.3%.

So if you believe that ANY form of business that has employees, whether a Sole Prop, INC, LLC is paying "payroll taxes" different than the above and SS and Medicare all at the same levels then yes you did waste your money because you misunderstood what you were being told by that CPA and lawyer.

Mueller Landscape Inc
02-01-2005, 03:50 PM
1) SURELY, you can't be that naive as to "employment taxes"? Or either you are your only "employee" and don't have an employee payroll outside yourself, so you don't understand how a payroll with employees works one. You are trying to compare apples to oranges on this, or as a good lawyer will do is trying to get someone chasing rabbits. This amount of 15.3% is what is paid on any type of payroll! The only difference is that when you are working for someone else, say Home Cheapo as only an employee, THEY are paying half of the SS and Medicare and YOU the other half. When you own the INC, LLC or what ever you are just paying it ALL on YOURSELF, even if "your" INC that you own is paying it because YOU own it and it is YOUR money and then as we all are you are also paying half of the 15.3% on ALL the rest of your employees. It is the same amount of taxes only paid differently!

2) ALL that is saying is what I said above. That on all the rest of the non-owner(s)...employees that half of the 15.3% comes from their pay and you as the owner/company/INC/LLC at taxed/pay the other half and it all still equals the same 15.3%.

So if you believe that ANY form of business that has employees, whether a Sole Prop, INC, LLC is paying "payroll taxes" different than the above and SS and Medicare all at the same levels then yes you did waste your money because you misunderstood what you were being told by that CPA and lawyer.

The point that you made was that a S corp is double taxed and you used the emp tax as your example. That is wrong. There is no double taxation with an S corp. There is with a C corp. That was/is the point and why you were incorrect. These payroll taxes are paid by all bus entities in some form and does not constitute double taxation. As I stated before, double taxation is the tax that is applied to profit which has expenses of payroll taken out but not dividends and which is then taxed at the corporate rate. Then that money is dispersed to shareholders and taxed again as an income, though not with self emp tax. That is what happens in a C corp. However, in an S corp this money is passed through to shareholder and taxed as income and not taxed the corp rate, therefore only taxed once. So you are in error with your position that all corps are double taxed.

jpmako
02-01-2005, 04:05 PM
Captain, John

I am sorry that we can not seem to win.
As you well know you are doing what you feel is best for yourself/ your company.
Let us just walk away knowing that we are wrong he is right and we are sorry. :cry:

Maybe we should start a thread called arguing until you get blue in the face!
Anyone care to join?



Jason

The landscaper
02-01-2005, 04:12 PM
Soooooo, what would you recommend I get into. LLC, Straight S-Corp, or partnership.

haha

jasonnau
02-01-2005, 04:16 PM
My company is an llc. I don't pretend to know all the in's and out's about it all. I was told as an llc, if you get sued, they can only sue your company, not you (under most circumstances). As a sole proprietor, you and your business are at stake. Also, if your company goes bankrupt, your personal credit is not at stake. You can start another company immediately. Plus I'm taxed as a sole proprietor, and it only cost 50 dollars to file as an llc, so, why not? The only downfall I have so far, is that all of my loans require me to back them personally. So, if the business ever did go bankrupt, they would go after me personally, and I probably would go bankrupt too. But, they say that your business is like an 18 year old applying for his first credit card. You have to establish your business as it's own entity credit wise, and build it until you can disassociate your personal name with it. I could be totally wrong about all of this, but this is the assumption I have so far. Let me know. Like I said though, it cost 50 dollars to file as an llc, so why not? It's got to afford some kind of protection to me.

Mueller Landscape Inc
02-01-2005, 04:20 PM
Soooooo, what would you recommend I get into. LLC, Straight S-Corp, or partnership.

haha

This depends on how much money you make. Your CPA is your best resource for this decision. You can search on Google too and gets lots of info.

tonygreek
02-01-2005, 05:21 PM
this is the exact reason i stay out of these discussions and a simple:
"it's reeeeeally too complex to discuss here. first talk to an accountant and THEN pop in here for discussion."

tony
- experienced llc owner and currently have my umbrella co. as an llc taxed as a sub-s

captaingreen
02-01-2005, 05:26 PM
Captain, John

I am sorry that we can not seem to win.
As you well know you are doing what you feel is best for yourself/ your company.
Let us just walk away knowing that we are wrong he is right and we are sorry. :cry:

Maybe we should start a thread called arguing until you get blue in the face!
Anyone care to join?



Jason
That is hilarious, I needed a good laugh!

Mueller Landscape Inc
02-03-2005, 01:38 AM
MMLawn here is the text from the link that you used with the bold type;

For example, a shareholder/employee receiving $55,000 in salary and another $20,000 as his or her share of profits would pay only an income tax on the $20,000. (Of course, the employee and employer are subject to employment taxes on the full $55,000 of salary.)

Notice that the $55,000 salary does NOT include the $20,000 additional profit. The $55,000 salary is subject to self emp tax.... half by employer and half by employee. The $20,000 additional profit is not subject to the self emp tax. In this example, the full 15% tax is split between employer and employee on the $55,000 for the corp. If this was a sole prop the bus would be responsible for the full 15%, same with LLC on the $55,000. For an S corp the $20,000 would pass through to owners on a K1 and not be subject to emp tax nor corp tax but as an income tax (No double taxation!) but with a C corp the $20,000 would be subject to corporate tax then taxed again after it in paid to owners as income tax.... double taxation. The sole prop would have to pay self emp tax on this money too. Try reading the rest of the link and it will explain further and perhaps we can end the confusion.

tonygreek
02-03-2005, 10:31 AM
mm's brought this s-corp thing up a few times in the last several months and i've never once understood where he's coming from. not sure if it's a context issue with regard to the individual thread or what.

mm, would you mind tossing up a post that specifically details how an s-corp is worse than an llc taxed as an SP? obviously what's better is subjective in terms of the individual, but you lose me every single time with the double taxation argument. thanks.

GreenQuest Lawn
02-03-2005, 01:30 PM
Well I was both, first an llc, now an S corp.

My company has stayed withing a couple thousand dollars in gross income.

I saved over 2500 in ACTUAL taxes paid per year.

Heck now my wifes witholdings pretty much covers all the taxes except SS.

I know I am sold on the S corp.

Lawnworks
02-03-2005, 04:23 PM
MMlawn,
Because all of us who actually are S-corps are idiots and are double taxed behind our backs!!!! maybe you should call an accountant or switch accountants and get the truth. I also pay my CPA good money for his legal and financial advise. I just became an S-corp. I am going to pay myself a $15k salary of which social security will rape at 15.3%, but any profit over that will not be subject to social non-security. Your ignorance on this matter is quite unbelievable.

The landscaper
02-03-2005, 04:32 PM
What all is involved in starting an S corp.

Green quest, how did you save the 2500?
What do you mean about your wifes withholdings?

Sorry for all the questions. I am reading on the IRS site and some other things as well. Just trying to get everything figured out. One of my profs, told me the other day that ignorant people are sole prop. So I want to find the advantages of the the other entities.

ElitePM
02-03-2005, 09:15 PM
My company personally is an LLC and I wouldn't have it any other way. BUT what you really need to do is a SEARCH on here as there are hundreds of threads on this very topic (normally weekly even) that have tons of info.

As to how a LLC is taxed is up to how you set it up with the IRS. It can be taxed as a sole prop or as an S-Corp (which I personally would not do because you lose the advantages of a true LLC so you just as well should go INC, but others as a LLC do file that way and swear by it). Also since you are only 19 the bigger question is do you even really NEED to Incorporate yet at this point? ARe you Full Time? Do you make "real" money at this? Do you have more than 2 employees (other than yourself) and do you have more than say $75K of personal unincumbered assets you need to protect? Do you have General Liablity Insurance? If these answers are yes to all of these then you probably do want to but if they are no you are probably better off remaining as a Sole Prop. Just Incorporating to say that you are an INC or a LLC and no other reason would be stupid at best.

I hate to argue here but after reading this whole topic I feel that I have to chime in. I am in no way an expert on taxation, or am I an attorney or an accountant. BUT in the past couple of months I have been reading a great deal in the different types of tax strategies that you have to consider when starting your own business. I did this so when I my partner and I visit our attorney next week I will be literate enough to ask the right questions.

Bravo to the landscaper in deciding to pursue forming some type of corp. I have been in the lawn business for a couple of years now and I regret not forming an LLC even before I purchased my first mower. I don't think that the above questions "Do you make "real" money at this?" or "Do you have more than 2 employees (other than yourself) and do you have more than say $75K of personal unencumbered assets you need to protect?" are necessarily the best questions to be asking here. I think that if you wan't to incorporate then the reasons should be more like "Are you looking to protect yourself in the event of a law suite?" or "are you looking to better your ability to LEGALLY deduct allot of your common every day expenses BEFORE you pay your taxes?". And those are just a couple.

The fact is Corporations were originally invented to protect ones personal assets from their businesses. If you really research where corporations originated from you will find that the British started them to protect their personal assets in case the ships and expeditions that they funded as early investors never came back. Some call it "Own nothing and control everything".

:rolleyes: Well that is my 2 (or 1000) cents worth. I'm sure I will get some wonderful responses from this post. :D

Lawnworks
02-03-2005, 10:17 PM
I think you are right on track. If you are serious about making a living at this. I think it is wise to go ahead and incorporate, get workman's comp, business bank account, payroll etc. I think going ahead and structuring everything from the get go would make expanding easier. I wish I had done these things sooner.

marko
02-04-2005, 01:27 AM
Landscaper,

Just got mine back from the attorney today (s corp). $1125 in the Chicago area (extra $125 to have it expedited). I have heard you can do it yourself for $325 or something, but my attorney and CPA work together w/ me so I figured I would have a pro do it. I got a book, shares of stock, rules for the corp. and all kind of stuff. Good luck!

Lawnworks
02-05-2005, 01:00 AM
My accountant did everything for me for $500.