Proprietorship, Incorporate or stay put and have the check made out to me?

[M.D. Holloway]

I have started a ghostwriting project on the side that will pay fairly well – actually stupid good. I have to invoice my client. The work I do for Manufacturing.net is 1099 stuff as is the University gig. But for this project I stand to make much more but I was also considering how I could maximize my profits and take advantage of business write-offs. I’m not sure if I need the protection of an S or C corp but there may be tax benefits as well? If I put it under my wife’s name it would be a minority business. That’s gotta have some benefits right? I could go and get a tax ID number and set it up as a proprietorship. I placed a call into my accountant to get his take on it.

In the next few years I have plans to expand – doing more writing and even setting up some seminar series. What do you guys think is the best way to go?

[Rodeo]

I can't add much, except to say that I think it's purely a tax-driven decision. Your potential liabilities I'd expect would be rather minimal -- libel and perhaps some claim on a missed deadline or something. But assuming you're just sending bits and bytes to someone electronically, the real issues are all tax

Do you need health insurance and can you deduct it from income?
Can you avoid or minimize self-employment tax?
Can you take a write-off for a home office?
Can you write off cars and travel expenses against income?
Can you potentially move some of the income to kids and/or spouse who might be in lower (or zero) tax bracket?

[bt1211]

I believe a LLC is what you want.

[red-beard]

For what you are talking about, an S corp would be best. You report the income from the business on your 1040, but you get the protection and write-offs. Basically, travel and business expenses will be the primary write off.

With a C corp, there is a double taxation issue (Corp Tax, then dividend tax when you transfer the money to yourself). Unless you have a reason to build up capital in the business and not transfer the money to yourself, a C corp is overkill.

Putting the business in your wife's name will not get you anything, unless her credit score is significantly better than yours. If it is, put the business in her name and name her as the president. This will come in handy if you lease a car in the businesses name. Do name your wife and the kids as stock holders. You will want to have periodic stock holder meetings...in various places around the world.

Rememeber, computers, cars, etc, that are purchased, are not expenses. They are capital assets which are depreciated to recover value. Leases are an expense.

PM or e-mail me if you want more details, since I've gone through this a couple of times.

[id10t]

Dont' forget the other benefits to getting an LLC, like not needing CLEO sign off on NFA items

[M.D. Holloway]

Do you need health insurance and can you deduct it from income?
- my full time gig offers a nice package

Can you avoid or minimize self-employment tax?
- don't know, would like to

Can you take a write-off for a home office?
- I am sure I could if this was set up as a standalone biz

Can you write off cars and travel expenses against income?
- yes, I think I could

Can you potentially move some of the income to kids and/or spouse who might be in lower (or zero) tax bracket?
- the reason why I would put it in my wifes name

[KFC911]

Why would an S corp be preferable over an LLC? I would think that an LLC is the better option...

[Burnin' oil]

Stay put. Incorporating, etc., cost money without any net tax benefit.

[red-beard]

The home office is harder to take than you think. If you spend most of your time on the road with the business, than actually, you cannot deduct the office! But, the leased car and the travel and other expenses (pens for ghost writing, internet access, paper, a leased computer, leased furniture).

As far as putting in your wife's name for tax purposes, I don't think this will get you very far. You will need to run the numbers of putting the income in your wife's name, filing separately Without her taking any dedections. If you file separately, she cannot even take the standard deduction. You would split up any deductions you would take.

I used to have to file my ex-wife separately (when we were married) but it was because all of my income was from a NY company and all of hers was from a Massachusetts company. If we didn't NY would claim her income as reportable...

[ChrisBennet]

Originally posted by KC911
Why would an S corp be preferable over an LLC? I would think that an LLC is the better option...

Not an expert but as a 1099 contractor in the software biz I've been asking the same questions recently. As I understand it:

S Corp - protection of a corporation but income "falls through" the corporation to your personal tax return and you don't have to pay a Federal corp tax

LLC - protection of a corporation, pay federal corp tax and personal income tax on the same money.

Doing Business As "DBA" - no corporate protection, no Federal (biz) tax, income goes on personal tax return, pay a small fee to the state every year to register your business name.

Do nothing - I can still deduct medical, my computer, books and I don't have to pay any fees to the state or federal corporate tax.

-Chris

[red-beard]

Chris,

LLC - Limited liability Company - It doesn't give all the protection of a Corporation.

C-Corp - allows the most deductions and flexibility, but requires the most work. If you keep the money in the corporation, it is only taxed at the Corporate level. You will pay Dividend tax on anything you pass directly to yourself.

Here is a primer on this:

[red-beard]

http://www.clickandinc.com/llc_vs_s_corp.asp

http://www.taxguru.org/corps/scorp.htm

With a LLC, you will pay self employment taxes on everything. With an S-corp you only pay self employment tax on a "reasonable salary".

With the S-corp, and with the LLC, you pay taxes on your 1040, so you will still have the potential for AMT, etc, and you will be means tested on certain deductions. But if you have a "loss", you can pass the loss onto your personal income, thereby reducing it.

With a C-corp, you cannot pass losses, but your "salary" is whatever you say it is. You would then pay self employment tax on this and report it on your 1040. Anything else you pass is considered a Dividend and taxed at the divident rate. Anything not passed it kept as an asset in the corporation. You also can deduct something that cannot be deducted with an S or LLC.

[ChrisBennet]

Originally posted by red-beard
Chris,

LLC - Limited liability Company - It doesn't give all the protection of a Corporation.

True it's not a corp but it does give you some protection - Limited Liability Company.

[turbo6bar]

Originally posted by ChrisBennet
LLC - protection of a corporation, pay federal corp tax and personal income tax on the same money.

If I'm not mistaken, if the LLC is a proprietorship or partnership, the income passes through to the individual's personal tax return. I don't think you pay corporate tax on an LLC's income.

luber, a corporation/LLC is good if you need:
1) tax benefits, ie. taking a salary in an S-corp and the remainder as a dividend. If you aren't raking in the dough via your writing gig, then you don't need the corporation.

2) liability protection of a corporation or LLC. Can you liability concern be covered with an umbrella policy?

3) writeoffs - I'm not sure where you're going to get big tax breaks here. If it is a legitimate expense, you can take that deduction on your individual tax return. I may be way off base here.

If your wife is going to sit in a lower tax bracket to save tax, are you going to suffer by filing separately vs jointly.

Just my random thoughts. There are so many facets to this.