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Tax benefit with Inc?

Discussion in 'Business Operations' started by kc2006, Feb 22, 2008.

  1. kc2006

    kc2006 LawnSite Silver Member
    Posts: 2,442

    So I'm wondering if theres some secret to taxes? Aside from "don't make so much". Right now I'm an LLC, but i was wondering if going Inc gives some sort of tax break or because of how you file you aren't beat up so bad?

    This year, taxes showed to be so bad on me that it's made me debate getting out of the business. Seems like what was a good income for the year went to he!! after all the tax.

    So is there an advantage to going Inc vs. LLC?
  2. Doug1966

    Doug1966 LawnSite Member
    Posts: 118

    In an Inc your personal income and business income are taxed separately. That way you defer taxation. So you keep more in the company to grow.

    when you finally sell your business you pay tax then.

    essentially in an Inc., you borrow the governement's taxes, interest free, in order to grow the business.
  3. ncls

    ncls LawnSite Senior Member
    Posts: 441

    the company pays the 6.89% social security tax on the income you pay yourself through payroll. Any money distributed as profit, is not subject to that tax.
  4. cwmiller928

    cwmiller928 LawnSite Member
    Posts: 109

    I'm also having a problem debating between going LLC, or INC. Anymore help is much appreciated.
  5. BLC1

    BLC1 LawnSite Senior Member
    from Ohio
    Posts: 714

    With the inc. you are double taxed because the corp is taxed and you are taxed. This is of course the C corp. The s corp the income flows straight through to the owner like a sole prop or llc. I believe you can set up an llc to be taxed like a corp as well. You can choose whether to be taxed like a sole prop, part., or corp.
  6. rmmllc

    rmmllc LawnSite Member
    Posts: 222

    Speak to an accountant!! But, I would say just elect to be taxed as an S-corp. You can do so even if you remain an LLC (without changing anything- just file a form) You will have to file soon, because you can only change during a certain time frame, so call an accountant Monday. If he doesn't know, call another (better) one. The advantage of an S-corp is avoiding the 15% self employment tax. This is accomplished by distributing some of the income to the "shareholders" (you). Dividends are taxed as income but are NOT subject to self employment taxes.

    Also, if you aren't doing tax planning with an accountant before hand (ie. now) you are throwing money away. Tell him what your financial goals are and he can tell you how to get there while paying the least amount of taxes possible.

    Another thing- vote against the Democratic presidential candidate or you will look back on "the good old days" when you only paid 40% in taxes. (I'd say vote for the Republican, but I just can't bring myself to tell anyone to vote for McCain, so just vote against his opponent) Maybe next time we can find a real conservative.

    Good luck- make that call. It will be money well spent and should pay for itself several hundred time.
  7. Grandview

    Grandview LawnSite Gold Member
    from WI
    Posts: 3,251

    I incorporated my business. I wanted a separate entity to sell if I wanted. It allows me to deduct my health insurance, medical expenses, and fund my retirement pretax. However remember any benefit you give yourself you must offer to your employees. In addition my business rarely shows a profit, so corporate taxes are not an issue.
  8. rmmllc

    rmmllc LawnSite Member
    Posts: 222

    You can fund several types of retirement plans through any entity. It just takes planning. I'm a fan of the LLC taxed as an S-corp for simplicity and no double taxation issues. Corporations are taxed pre-distribution (C-corps), but s-corps are not. LLCs are easier to administer (paper work) than a corporation.
    I hope this makes sense to you- you can have an LLC, but pay taxes like an S-corp.

    As for a separate entity to sell- definitely better to have an entity rather than a sole proprietorship. Better for liability protection, too (a must have I believe).

    Get a good accountant and see what he is most comfortable dealing with- an LLC taxed as and S-corp or a full out S-corp. Just don't forget to actually do the things to administer it after you set it up. Either buy a book (from Amazon.com or somewhere) and read up on it, or make sure your accountant tells you in detail what to do. It isn't hard, but the steps must be followed or your liability protection might be penetrable and if you are audited the IRS might determine that you and your business are the one and the same (bad thing if you have paid yourself dividends- you will owe back taxes). If you do it right it is perfectly legitimate though.

    Only very large operations benefit from a C-corporation. Smaller operations should have an LLC or S-corporation.
  9. Doug1966

    Doug1966 LawnSite Member
    Posts: 118

    But smaller operations can become larger corporations faster if they are a C corp because they have more retained earnings available to invest in growth.

    Its a question of when you do want to pay your taxes, now or later. And if you choose later, make sure plan to use that money to grow your company by buying machinery or buying accounts from other LCOs. C corps will have a bigger war chest to do battle with.

    This is of course assuming there is enough profit left in the company after paying yourself what you need to live off.
  10. rmmllc

    rmmllc LawnSite Member
    Posts: 222

    You would have to be really big (IMO) to benefit from a C-corp. Retained earnings are taxed, too, so instead of paying now instead of later, you pay now and later. Equipment purchases are depreciable anyways, so just leverage a bit and take the deductions.

    There are very large LLCs that operate just fine as such. C-corps can raise money by selling stock (so can S-corps and LLC's can by selling membership units), but then you get into securities issues- then you have to hire a specialized lawyer (big bucks).

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