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Sole Proprietor or LLC

Discussion in 'Business Operations' started by Buddy Buds, Mar 15, 2008.

  1. Buddy Buds

    Buddy Buds LawnSite Member
    Posts: 146

    I am a sole proprietor with $2000000 liability and a $4000000 umbrella coverage. What about the tax liabilties in becoming an LLC?
  2. rmmllc

    rmmllc LawnSite Member
    Posts: 222

    Taxes don't change unless you choose to be taxed as an S-corporation, then you can aviod some self employment tax by paying your shareholders (you) a dividend. Dividends are not subject to self employment taxes.

    LLC's are a flow-through entity and do not change your taxes (unless you are an LLC taxed as an S-corp as mentioned above- it is a simple IRS thing and you do not actually have to be an S-corp to be taxed as one). LLC's are mostly for asset protection- if someone takes you to court they could go after your personal assets if you are a sole proprietor- if an LLC they can go after everything your LLC owns, but not your personal assets (like you house).

    I'd talk to an accountant that is willing to do some planning with you to see what is best for your situation. Good luck
  3. Buddy Buds

    Buddy Buds LawnSite Member
    Posts: 146

    My accountant had told me I would lose to many deductions. My attorney told me to get the umbrella coverage. He said he had never seen anyone win up to the$4000000 coverage. thanks for the response.
  4. BeautifulBlooms

    BeautifulBlooms LawnSite Senior Member
    Posts: 613

    rmmllc you seemt o know exactly what I have been wondering.

    We were set up as an LLC to start and then midyearlast year we incorporated to an S Corp. We were under the impression we are still and LLC just for tax pruposes an S-corp is that possible or is it one or the other. Scorp or LLC
  5. rmmllc

    rmmllc LawnSite Member
    Posts: 222

    You can file an IRS form 2553 and choose to be taxed as an S-corp even if you are an LLC. So legally you are an LLC (they are state specific and have mostly to do with liability protection rather than taxation) and the IRS looks at you as though you are an S-corp. So in your legal name you will probably be required by your state to have "LLC" somewhere (although you can do as many DBA's as you want- you just register a different name as the name you are "Doing Business As"), but when you file your taxes you will file as an S-corp.
  6. rmmllc

    rmmllc LawnSite Member
    Posts: 222

    Lose deductions by being an LLC or S-corp? Neither are true. You can take any business deduction as an LLC or S-corp that you can with SP, and vice versa. The advantage in an S-corp (either LLC taxed as or a true S-corp) is you can pay the shareholder dividends (you) which are NOT subject to 15.3% self employment tax (but are subject to income tax). In a SP or LLC, all profit that you make (income - expenses = profit) IS subject to 15.3% self employment tax, plus regular income tax.
    So depending on how much you make, you can save a bundle in SE tax by going the S-corp route. If your accountant doesn't know this I'd get a new one.

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