Discussion in 'Business Operations' started by HacMan91, Nov 23, 2001.

  1. Highpoint

    Highpoint LawnSite Member
    Messages: 153

    If you have Employees, Get Incorporated. They do not care about you in most cases and they do not think of the outcome of their ignorance. They can KILL you in the blink of an eye. Talk to a lawyer, get the scoop. We started in 1989 as Sole Prop. Got a S Corp in 1999. Good luck:eek:
  2. wolfpacklawn

    wolfpacklawn LawnSite Member
    Messages: 120

    One of the best advantages of incorporating is reducing your self-employment taxes (equivalent to Social Security and Medi if you were employed by someone else) . If you are a sole-prop. then you have to pay SE taxes (15.2%) on all of your net profits. Then on top of that is your income tax of course. If you are a S-corp then you can "deem a wage" for yourself and just have to pay your employment taxes (Social Security and Medi) on that wage. For instance, If your net profit is about $5000 a month and you are a sole-prop. then you will need to pay $760 (15.2% of $5000) in SE taxes per month and then your income tax on top of that. Now lets say you are an S-corp, the corp still nets $5000 per month but you are an employee of the corp. and pay yourself say $1000 per month as a deemed wage and the other $4000 as dividend payments as a stock holder. Then you would have to pay your Social Secuity and Medi on only the $1000 which would be $152 (7.6% on employee withholding and 7.6% matched by the corp.) That would be saving you over $600 per month.

    I agree with the above advise to see an accountant and a lawyer but for me the benefits of incorporating are obvious. Nevada is a very corporate friendly state and the cost of incorporating is only $85 and its fairly simple to do. I understand the costs in other states are much higher and the requirments also much higher but you would do well for yourself to check these things out. You could be saving yourself a ton of money.
  3. Kent Lawns

    Kent Lawns LawnSite Senior Member
    from Midwest
    Messages: 870

    Got to be careful there...

    The IRS frowns on $12,000 annual salary and $50,000 in dividends.
  4. Fantasy Lawns

    Fantasy Lawns LawnSite Bronze Member
    Messages: 1,912

    the Dividend Issues need to be kept in line ==> "Audit"

    In Florida officers of the corporation are allowed to be exempt from workman's comp ....S corp set up about $150 ;->
  5. SprinklerGuy

    SprinklerGuy LawnSite Bronze Member
    Messages: 1,778

    John Allin,
    I would be interested in hearing just exactly how a sole prop and his personal property is protected by insurance ONLY. I have heard many a story of an insurance company selling out to protect itself.

    I'm not saying a corporate structure is complete protection, but it would be helpful in most cases.

    Also, in my SCorp I pay myself a pretty good salary and whatever else is a dividend. I do not like the prospect of an AUDIT.
  6. John Allin

    John Allin LawnSite Bronze Member
    Messages: 1,488

    We've actually been through THE worst case scenario that can happen to a small business person with employees, and came through it (financially) just fine. Unfortunately we've been through it twice. Same insurance carrier too. Interestingly enough, we left that carrier three years later, and then went back to them two years after that. They solicited us. At the time, our liability coverage was at $5M. Now it's at $10M. At those limits, they don't cut and run. Also, the relationship you have with the underwriter and carrier has alot to do with it, if a catastrophy occurs.

    And, the benefits of being a sole prop increase as you get larger, although it helps to have a CPA on staff (which we do) who works well with your outside accountant and legal team, and who also moonlights with H&R Block during tax season and has access to considerable year end information.

    I'm not saying that this avenue is for everyone, and I'm not portending to dispense advice on this subject - it's just what we have done in our situation. I should state that we are involved with several corporations outside our core business's, and I do understand the benefits of incorporating under certain circumstances - so I'm not at all advocating that staying as a sole prop is the right choice for everyone, and I certainly understand the views that have been put forth above.

    Feel free to email me if you want to have a more in-depth conversation about what happened and how we came through it. Some of the details are such that this isn't the proper forum for that type of conversation.
  7. bruces

    bruces LawnSite Senior Member
    Messages: 648

    There is no savings on FICA (social security) taxes by incorporating. You are withholding 7.65% from your salary and you (the corporation) are matching the 7.65% for the employer part. You will also probably have to pay unemployment taxes on your salary if you are incorporated.

    Each case is different. See your cpa and attorney and decide with their advice.

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