Why can't I just handle the business?

[Strategy]

I've did tons of research trying to stay compliant with the regulations and guidelines dealing with the legal issues of owning a corporation but as it seems its never ending and theres always something new to learn. My question is why can't I just have someone that handles everything to keep it in order and pay them and let me run my business rather than having to spend majority of the time I could be using to actually conduct the business doing all of this research to try to get everything in order.

 

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[kurtyordy]

That is called having an attorney and accountant on your team.

 

[Strategy]

okay... but in a small business situation with a min. budget what would be the best thing to do

 

[kurtyordy]

what are you trying to do? Are you overthinking things?

 

[Diane Kennedy]

In another thread you said you had started a C Corporation. That's the most complicated structure there is. There would have to be a VERY compelling reason before I would EVER put a new biz owner in a C Corp.

So, keep it easy - dissolve the C Corp (if you already set it up) and start with an LLC. You might pay a little extra in tax if you have income, but it will save you lots and lots of hassle in the beginning. Once you know how to run it and are making money, you can either decide to move to a different type of structure that you run (which makes no sense to me) or (better answer) hire someone to do it for you, so you can do what you do best - make some money.

 

[hakrjak]

It's not ridiculously expensive... I pay my accountant $600 a year to manage everything involved with keeping both of my corporations legal & clean on the books.

- Hakrjak

 

[Russ H]

hakrjak-

Just to clarify:

You have 2 C-corps?

And your acct does all the corporate filings and meeting summaries for you, PLUS annual acctg, for $300 per corp?

Wow.

-Russ H.

 

[Strategy]

Thanks for all of the valuable information, I hope to be able to contribute more and more as the years go on with these forums. I am also a former Rich dad poster but its pretty much dead.

the only reason I went with a corp is because the health insurance deduction, that was a big thing with me that I needed and wanted.

So tax wise it would be way simpler with an llc?

also, with the corp all I've done so far is file the articles of incorp, haven't even put the notice of incorp out yet. no money deposited or anything. Would it be free to dissolve it or would it cost?

 

[Diane Kennedy]

S Corp can now take the medical insurance deduction as well.

The issue with the C Corp is that you have to draw out cash through salary, benefits or non-deductible dividends. With an LLC, it is much easier to put money in and out. An S Corp (which you could get with your current C Corp by filing the S Corp election) is also easier than a C, but you have to have a payroll (which means you or someone) is going to have to calculate and prepare payroll withholding and reporting.

I don't mean to make this sound impossibly hard to do. You just will have a big learning curve. I have too often seen people who get mired down at this point with all the details and "what ifs" of a corporation, and never get a chance to really have their business.

 

[Strategy]

Also, I wanted to have an EIN and no a one person llc can't get one... I wanted to be able to build credit and eventually get loans for the corp, if you dont have an EIN that isn't possible right (If i formed LLC)

 

[Strategy]

also could you breakdown all of the taxes specifically if I did the LLC, you would have federal, state, and I been wondering about county, also with the llc do you do any kind of extra taxes like unemployment, or something else i dont know about?

 

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[Diane Kennedy]

Also, I wanted to have an EIN and no a one person llc can't get one... I wanted to be able to build credit and eventually get loans for the corp, if you dont have an EIN that isn't possible right (If i formed LLC)

A one member LLC can get an EIN - Form SS-4. I'm curious where you are getting your information - I really recommend that you get an experienced advisor and read some books (other than IRS literature - which is practically incoherent) to help you because it seems like you've gotten some incorrect advice.

 

[Diane Kennedy]

also could you breakdown all of the taxes specifically if I did the LLC, you would have federal, state, and I been wondering about county, also with the llc do you do any kind of extra taxes like unemployment, or something else i dont know about?

I really recommend that you read "Loopholes of the Rich" because i do go through all the types of tax in that.

 

[Strategy]

so DIANE Im debating on going with LLC or just change it over to S-CORP...

 

[Strategy]

Dianne, my situation now is should I close the corp out and run with an LLC, or elect the C-corp into an S-Corp? Now my question is, in the state of GA what would the overall taxes be for each that I would be paying, I still haven't fully grasped that concept yet because I got bombarded with different info such as having to pay worker's comp, unemployment (even if its just one person) and all of this other...

Im waiting on a good answer before I finish filing my notice of incorp with the publishing company.

so if you could please break down in simple terms what all taxes I would be liable for with my business as an LLC, or as a S-CORP.

I surely will be reading your book but I got to make this decision soon ...


Also if I formed the corp on 12/20 and haven't did anything would I be liable for 07 at all to provide anything?

 

[JesseO]

Diane's book, "Loopholes of the Rich" is free (plus shipping) through this website. I ordered and received my copy several weeks ago. It has been an excellent read and I suggest that you look into it, Izzalap. Best of luck on your business =)

 

[LightHouse]

A one member LLC can get an EIN - Form SS-4. I'm curious where you are getting your information - I really recommend that you get an experienced advisor and read some books (other than IRS literature - which is practically incoherent) to help you because it seems like you've gotten some incorrect advice.

Diane this post took the words right out of my mouth. I am also curious as to where you heard you could not get an EIN for a SM LLC! Atleast if you call a local professional they can advice you of costs up fornt and you could get that money in order and get solid advice based on your individual situation!

 

[Diane Kennedy]

Let's see if I can make this simpler:

Income taxes are based on income. How much taxable income will you have?
(Federal, state income tax)

Payroll taxes are based on payroll. How much payroll will you have?
(Social Security, Medicare, Unemployment, Worker's Comp)

 

[Strategy]

^ Thank you... that is what i've been trying to actually figure out..

now the question is, sitting here with my C-Corp, yet to actually file the notice of incorporation, would I be better off electing an S-Corp or closing it out and changing it to an LLC....


also, with an LLC, can you build actual credit through your company like you could a corporation?

 

[Strategy]

Okay. after looking into the situation some more I think my best bet is to dissolve the corporation and form the LLC...

I made a mistake by jumping into it and forming the corporation like I did but I do not regret it at all, its all apart of the learning process...

so overall, as an LLC correct me if I'm wrong but I will be paying

-15.3% for the self employment taxes
- Federal Income taxes
- State income taxes

and all of these income taxes I pay will be from my personal level correct? or does LLC's have to pay state tax?

I'm sorry for all of the questions and wrong information but I really do appreciate all of the help and will support you in anyway I can.

 

[Strategy]

For a beginning business: typically LLC taxed as an S Corp or an S Corp itself

In general, I like to use an LLC electing to be taxed as an S or as an C, instead of just owning an S or C directly.

Businesses almost always should be an S Corp or a C Corp...or LLC electing to be taxed as an S Corp or C Corp. That's because if you use just a straight LLC, you'll have self-employment tax of 15.3%. Corps don't have self-employment tax.

After reading that from your thread though Dianne, I'm questioning on just changing the C-Corp to an S-Corp but I also read the way an S-Corp is even if you don't end up making any money you still have to pay yourself a reasonable salary and you could end up paying taxes on income that was your's from the get go..

If you get a chance please fill me in on the best thing I could do in this situation... I really do appreciate it..

right now im sitting here with a C-corp and haven't even filed the notice of incorporation yet so I'm on the edge of my sit waiting on the best thing to do..

 

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[Strategy]

don't forget about me, dianne ...... I need you!!! lol

 

[Diane Kennedy]

IZZALAP:

You have a couple of threads going and I got confused. I'll just answer on this one (although I wonder if it shouldn't be in the tax area)

In another thread I asked you how much taxable income you would have from the business and how much payroll you would have.

I understand you are confused, but without good information, you can't get a good answer.

So, I'll repeat those questions. When I say payroll, btw, I don't mean what gets paid to you - I mean other people. We can adjust your salary, especially in the first few years, depending on how the income from the company goes.

 

[Strategy]

I will be the only employee right now if that helps at all. The company is an entertainment services company, offering music production, cd duplication and printing, graphic design, marketing, recording time, and it will be hosting many events and showcases which will bring profit...

It's hard to give you a number for taxable income because this is the first year I am incorporating all of these services together. In the past 6 years I've just been selling rights to the music production and averaging 5-6k a year (before expenses)

But this year, with all of the new services I plan on building many new clients in markets I've never touched with the cd duplication, printing, and graphic design services such as music artists needing cds manufactured all the way to businesses' needing catalog's, flyers, ad's made.

I also plan on the official website to be a success with alot of helpful information and an online place to order products.

In the more distant future I plan on having a commercial location that will be home of the company and offer the services at the home base.

I hope this helps you understand what's going on a little more...

so in conclusion, I truly believe if I play the numbers right the amount of taxable income could be relatively high and you should always aim high but I am still being realistic knowing this is the first year and it's a lot of growing that will need to be done to get it off the ground.

The problem I'm facing now while I'm finishing up the prices, web design, and going out generating leads is getting this tax situation and business structure in place correctly before I start generating income.

Thanks so much..
When this thing blows up I will surely include you in everything I do and help you the same way you helped me.

 

[Diane Kennedy]

IZZALAP -

This is the part that's hard. I could give you an answer (probably tell you to elect S Corp), but I have no idea if it's right or wrong because I dont' know what the taxable income is.

Taxable means after expenses, so after expenses is it.... a loss? Less than $50K? $50K - $150K? More than $150K?

 

[Strategy]

I'm not trying to limit myself cause I would love to go above 150k and with the right clients it could easily do it. But I would say after expenses anywhere from a loss to less than 30k?

 

[Diane Kennedy]

Perfect - thanks for the info.

You should be an "S Corp" for at least this year. You can change back next year, don't worry about that now. just focus on one plan.

(1) Finalize the corp that you have
(2) File S Corp election with the IRS - I always get this form mixed up - I think it's 2553..or possibly 2533. if you're married and live in a Comm Prop state, spouse needs to sign as well.
(3) You don't need to do payroll (so no payroll tax issues) if your income is loss to $30K.

S Corp taxable income will flow through to you via distributions (which you can take monthly or quarterly or periodically...) without any payroll tax.

You may also need a business license - check with your city or county municipality on that.

Make sure you open a separate checking account for the corp and keep your books. If you dont' hire a bookkeeper, at the very least get a double entry bookkeeping system. My fave is QuickBooks. It will walk you through a lot of the info you need to have to finalize.

 

[Strategy]

Thanks... I am so glad I didn't dissolve the corp like I was about to.

Everything sounds like it is coming together more and more with your help.

(3) You don't need to do payroll (so no payroll tax issues) if your income is loss to $30K.

Is 30k the limit before you have to pay payroll taxes or were you just saying that from what I said?... either way that is great. I read somewhere ( not sure exactly where) ...

. Although FICA tax is not owed on distributive shares, the IRS and equivalent state revenue agencies may recategorize distributions paid to shareholder-employees as wages if shareholder-employees are not paid a reasonable wage for the services they perform in their positions within the company.

having to pay yourself a "reasonable" salary regardless if you have a loss or not can you inform me if this info is false or fill me in a little more on it if its accurate or true to some extent?

You may also need a business license - check with your city or county municipality on that.

I was going to ask you about that also... I formed the corporation in GA and got a registered agent out of GA but currently live in Alabama. I plan on moving to atlanta, ga with the business in the near future but when I applied for the EIN I had to give my home address in Alabama. Would I have to get a certificate of authority if majority of my business was done online and there wasn't an actual retail location in alabama or how does that work? I dont want any unknown penalties that I wasn't aware of.

I already have the forms needed to open the checking account and am in the process of doing that now.

 

[Strategy]

The jurisdiction for s-Corp is the state is which it has its physical headquarters. A company could incorporate in Delaware but be located in Virginia. The company would have to register in Virginia and operate under the law of Virginia, paying Virginia annual fees and taxes in addition to annual fee for Delaware. Its business relations beyond Virginia should, in any of its agreements or contracts, indicate that Virginia is the state law that will rule the agreement. The jurisdiction will always be the state where it has its primary physical location. This is a good question because some s-Corps do a lot of business outside the state of their jurisdiction.

Please tell me this is not true. Originally a mentor of mine told me the address I gave the IRS when applying for the EIN was irrelevant and all that mattered was what state you did business in was the one you were registered in. Also keep in mind alot of it would be online.

 

[Diane Kennedy]

Your issue here is nexus - where do you do business.

Nexus will attach to the state that can prove you have the most activity based on: where you advertise for the sale, where it is fulfilled and where you collect the money.

So, if you have an Internet business that is electronically fulfilled, you'll look at where the servers are and when you have the bank account. If you have an Internet business that ships a physical product, you'll look at where you fulfill the physical product from (ie, where do you ship) and where your address is.

You have a lot of very basic questions - I'm not worried about the questions you do know, but more that you don't know what you don't know.

I STRONGLY suggest you get a paid professional to help you and walk you through this. If you don't have the money yet, wait on your business until you do.

A wrong move here could cost you thousands of dollars in penalties and legal fees.