What Corporate Structure For A One Man Company

[jyl]

Looking for tips and education. I'll be consulting a CPA about this but just want to get some thinking first.

Setting up a professional (financial) services company. It will essentially be one person (me) providing the core service, using a bunch of outsourced support services. In the future may have one or two employees, like an assistant type.

Was told the thing to do is to set it up as a LLC with a S Corp. Pay myself a low salary and take the rest as distribution. Supposedly this minimizes self employment taxes or something.

As you can tell I have no idea so throwing it open for ideas.

[crb07]

Not sure if states can effect the choice but my accountant says LLC or Scorp. 25% of gross income into a SEP before taxes and take out what I need during the year. There is a cap on the SEP per year.

[drcoastline]

Having an LLC and an S Corp seems redundant unless that was a typo. The LLC and S Corp provide similar protection but have different tax structures. in addition to your CPA you should consult a good business attorney as well for the best business structure.

[MRM]

LLCs can own S Corps. That’s one of their main advantages. LLCs are pass though entities so the owner of the membership units pays tax on the LLCs profits as ordinary income but benefits from the corporate veil. S corps have to pay tax as its own entity. So someone could be self employed with an S Corp drawing a salary and the S Corp pays the Social Security and other payroll taxes so the employee doesn’t pay self employment tax. The profits could be distributed from the S Corp to the LLC as dividends and then distributed to the LLC membership unit owners.

It sounds like the suggestion is that having the S Corp pay the employment taxes and taking dividends and distributions through the LLC might be more tax advantages than having just a pass through entity like an LLC where everything is ordinary income or just an S Corp where any profits at the end of the year get taxed before dividends can be distributed.

[onewhippedpuppy]

I'm a 1099 contractor and set up as a sole proprietor LLC. No payroll to mess with, I rolled my previous employer's 401k into a Roth IRA so I'll still get tax deductible retirement contributions, and will be setting up a SEP soon as another means to save for retirement and get a tax break. Look up the IRS QBI, it's a new tax deduction introduced with Trump's tax cuts that can give you another 20% tax deduction if you're a small business and meet their criteria.

[GH85Carrera]

I have a partnership with one other person. We went with a LLC.

If you want to watch your bank balance shrink, have your attorney call your CPA, and have them discuss your best options. There was a sucking sound from my bank. They are both experiences professionals but the double billing for that conversation was painful for our checking account.

In the end, I have to trust both of them have my best interests in mind, and my company is set up to protect me, and my partner's assets.

[shadowjack1]

Since you are a one man business, you can talk to yourself and when people question what you are doing, just say" I'm having a staff meeting".

[GH85Carrera]

Originally Posted by shadowjack1

Since you are a one man business, you can talk to yourself and when people question what you are doing, just say" I'm having a staff meeting".

Yea, I get to complain about "the bosses wife" making me wash her car, mow the yard, and help her in the flower garden, all for no pay. I get even with my lousy boss by drinking his beer, and I sleep with his wife!

Of course I kiss her in the morning "to go off to work" and walk my 14 steps down the hall to my home office. Heavy traffic is the dog in the hall, that I have to step over or around.

Its good to be the boss.

[Por_sha911]

My advice: don't take advice from someone who has nothing to lose if they are wrong. Seek professional advice.

[MBAtarga]

Originally Posted by jyl

Looking for tips and education. I'll be consulting a CPA about this but just want to get some thinking first.

Pay myself a low salary and take the rest as distribution. Supposedly this minimizes self employment taxes or something.

As you can tell I have no idea so throwing it open for ideas.

The CPA (retired IRS agent of 30 years experience) we consulted with several years ago when my wife was starting up self-employed, he recommended she take 50% of the proceeds as income and the remainder as a distribution. He explained the 50% threshold is one that the IRS won't contest as tax-avoidance. Anything less - and it can cause problems if audited. We took his guidance.

Edit - and yes - you won't have to pay both sides of the SS on the distribution portion of the income - only on the salary, so it does save you that.

[jwasbury]

Originally Posted by onewhippedpuppy

I'm a 1099 contractor and set up as a sole proprietor LLC. No payroll to mess with, I rolled my previous employer's 401k into a Roth IRA so I'll still get tax deductible retirement contributions, and will be setting up a SEP soon as another means to save for retirement and get a tax break. Look up the IRS QBI, it's a new tax deduction introduced with Trump's tax cuts that can give you another 20% tax deduction if you're a small business and meet their criteria.

single member LLC is what I generally recommend to people who are solo practitioners.

while the S-Corp structure can offer some employment tax advantages (pay yourself "reasonable salary" and take the remainder as distribution), you should do the math to see if the extra administrative burden is worth it vs. single member LLC.

Single Member LLC, all you do is file Schedule C attached to your 1040.

S Corp, you will need to file an 1120 annually, plus whatever state filing requirements, and you will need to do payroll tax filings (W-2s, W-3, 940, 941, and/or 944). If you're going to subcontract all that stuff, it may cost more than your tax savings...do the math.

[onewhippedpuppy]

Here’s my thread from earlier this year.

Any 1099 Contractors?

[DanielDudley]

Sole Proprietor has a lot of benefits.

[Zeke]

Originally Posted by DanielDudley

Sole Proprietor has a lot of benefits.

It does when the income factor is modest and not looking for any "advantages." Good insurance will take care of the SP. Put the house in a trust. Laws on that may vary but I've never heard of a good argument for not having a revocable trust. Put your legal expenses toward that.

[RWebb]

Be sure to evaluate CA or OR tax issues, not just federal.

[RWebb]

oh yeh - also county taxes & transit taxes (yes, Lane County has those so I bet Multnomad county does too)

[jyl]

Thanks everyone. I will be consulting a CPA and have already contacted a business attorney.

Another interesting wrinkle - RWebb hit on this. I live in city of Portland OR which has a city business tax (2.2% of profit) and county of Multnomah which has a county business tax (1.4% of profit). Business attorney suggests locating my business outside of Portland/Multnomah for this reason. I could go to a neighboring county or over the river to Vancouver WA, neither have a comparable business tax. The commute to either place is not much. I don't really want to work from home - prefer to separate home life from work life.

My "location" can, at least initially, simply be a co-working/shared services sort of place (e.g. a WeWork). All I need is a private/lockable office with fast/reliable internet (I will figure out necessary data security) and use of reception/conference room/mail. This can be located almost anywhere and costs around $1K/mo.

Obviously I am over my depth. I'm going to bring my business model/projections to CPA to see what sort of corporate structure is worth doing.

[RWebb]

I bet there is a way to have the corp. situs different from your (main) physical presence...

It may depend on two things:
- attorney cost for advice or set up
- desire to avoid taxes vs. desire to pay for city service that you use (i.e. good citizenship)

Anyway, good luck with it!

(and you us all some guaranteed financial advice! say, something along the line of Tier 1 PERS...)

[jyl]

Okay, talked to CPA and doing LLC with corporate tax election.

[Shaun @ Tru6]

Originally Posted by jyl

Okay, talked to CPA and doing LLC with corporate tax election.

Can you expand on the corporate tax election? It is my understanding that the IRS treats single member LLCs as sole proprietorships.