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Is there an advantage to Incorperating a business?

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grassman50

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Discussion starter · #1 ·
hi, i am 19 years old and i have around thirty or so lawn accounts, half in which i fertilize, and i have two commercial accounts. the rest are residential. I was wondering if it would be a good thing to become incorperated? What are the advantages? Disadvantages. Say I make around $700.00 a week for cutting grass and other odd jobs, would that be subject to change if i was incorperated. I really dont know much about it at all. I do know that i would like to get business insurance? And does anyone know how much business insurance is? Also, i dont pay any taxes now, but if i do, then do i charge the customer tax also? Any help would be greatly appreciated. thanks much.
Jeff:)
 
#2 ·
First off, Welcome to the Lawnsite community.

Now down to business. I am your age, 19 and in college. I got legal 2 years ago. In order to get legal you will have to talk with an accountant and a lawyer. You will need to start up a corporate account at a bank, and will have to get a tax ID number, or EIN number. For insurance, its all on how much the job requires, and how much you think you need to cover your a$$. I paid $1200 last year for $1,000,000 of coverage. This year I am paying about $2700, for the same amount, but I am covered for more things.

For pesticide apps you will need an applicator's liscence from your state which opens up a whole new bag of worms because of keeping records, getting recert credits, and a whole lot of other things.

In regards to taxes, you will have to pay corporate taxes, income taxes on the business, then income taxes on yourself once you get paid. Also you will have to pay taxes when you pay yourself; SS, Medicaid?, state tax, federal tax. Then the good one is sales tax, unless you are doing certain forms of work that can be considered capital improvement. When you charge sales tax; over by me it's 6.75%. Nice easy equation:

2 lawn cuts: $100.00
Sales tax : $ 6.75
Amount due : $106.75


You pay the money for taxes quarterly, yearly, monthly or whatever it works out to.
Also, SS when you pay yourself, whatever you take out of your paycheck, you must pay that out, and also match it from the business.

Now the benefits of being legal:

When you go to a bank for a loan for a vehicle, machinery, etc. you will have tax returns to show income.

If you do damage to somebody's house / building / person. They sue the business. They do not sue you. When you are legal your insurance company takes care of it. If you don't have insurance and you are not legal, you get sued they take whatever you own to get their money. :( Now if you go over the money you are covered for by insurance, they can go for whatever assets the business owns.

What else? Um I am trying to think here, but its almost 11:00 PM here and my brain is starting to run low on steam.

Oh yeah, use search.
 
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#3 ·
First of all go get insurance tomorrow! You are taking a huge risk operating a business with such dangerous equqipment with no insurance. Second..find an accountant as soon as possible. He will help you register your busniess, get a tax id number and do all the other goodies involved in preparing to send uncle sam his share! Liabilty insurance is not very expensive. For what you are grossing id say 5-600 a year for 1 mill liability and inland marine on your equipment. About becoming incorperated....thats defintly something you should talk to a certified accountant about. It is very complicated and will change the way you must run your busniess and handle your money.
 
#4 ·
with that kind of money that you are makin don't get incorporate, you'll end up paying too much taxes and is more complicated to account therefor more expensive, if you don't own a house or have a lot of money in the bank star by being just a DBA, or if you own a home have a lot of assets become a LLC.
 
#5 ·
i differ from above post you will not pay more in taxes you will in fact pay less than if you were a sole prop. or a llc. quite simply there are more tax loop holes if you have a corp. ask about becoming a S CORP. versus the others , also money has nothing to do with this.. i got inc. 15 years ago and was making about 125.00 a week
 
#6 ·
Welcome! I strongly recommend that you incorporate. Ditto on the previous posts. The tax advantages are expensing everything possible before you are taxed. That is the opposite of running a sole proprietor- you are taxed at a rate before you can deduct expenses. Ditto on the legal liability- you'd be crazy to not incorporate. S Corporation is the way to go. Recommend you check out the book Inc. and Grow Rich. You can get it from your local library. They can access it through inter-library loan if they don't have it locally. This book will convince you to get moving with incorporating.

Cordially,
Sheppard
 
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#7 ·
If you incorporate, the corporation functions as a separate entity.

There will be tax returns filed by the corporation, annual registration filings with the state, etc. Then you will have to file a return personally. You could limit your liabilty by forming a one person limited liability company (LLC). In that case, you would probably just include the business income on your personal return on schedule C.

It's virtually impossible for anyone else to tell you if you should incorporate or not. It all depends on your individual circumstances and plans.

Find an accountant and attorney you trust and consult with them.

A good way to find someone is to ask other people in business to recommend someone.

Spend some money on consultation and get advice from people who you explain you situation and plans to, then you can make an informed decision. Then you can decide if you want to form an LLC, C corporation, S corporation, etc.

Most importantly, get insurance now.
 
#8 ·
I have recently changed from the accounting world to a lawn-business. I would recommend incorporating and filing as an S-corp. In addition to the liability protection you can save on self employment taxes by taking a salary instead of whatever is left over after expenses. I would definitely recommend that you consult a CPA to help you with the forms and business setup.

Good Luck!
 
#9 ·
You really should see a lawyer and CPA. I don't know how it is everywhere, but you can usually be sued for what you personally do. Incorporating will protect you personally from the actions of your employees, but you are personally liable for anything that you do. The person will also sue your company because they go where the money is. Most lenders will require a personal guarantee of the loan, so no real advantage there until you've been in business for a while.

As far as tax advantages go, that will depend on the specifics of your case and, like liablity, where you are. Any advantage may be outweighed by the hassles. It sure is true in my case.
 
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#11 ·
For all the reasons previously stated and.. it is the RIGHT thing to do. You are driving on the street(probably more than your neighbors) its time you help pay for them. You are basically stealing if you are generating over $30,000 in income and not paying your taxes. if you cant already tell it makes me mad. I have a wife, kids, a mortgage, etc. I cannot compete with someone who does not pay thier bills.
Incorporate and you can be safer, better suited to grow and be an honest, productive citizen.
 
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