Are they any good small business forums where questions can get answered

[The Stigenator]

So I have a technical question that I cant seem to find an answer to easily.

A friend of mine and I are planning (filing paperwork in 2 weeks) into a partnership / form a corporation.

The issue we are having has to do with LLC vs. S-Corp/C-corp. It seems when there is more than 1 party an LLC is considered as a partnership (LLP). We dont intend to go public so the S & C is kinda useless to us, however they do have some advantages and disadvantages associated with it. C Corps have the double taxation issue, which can be a problem. And S Corps we write the taxes on to our individual IRS tax filings.

What we ideally want to do is form a corporate entity, and then we get paid as 'employees' rather than having to take money out of the corp to pay out expenses. That way we can allocate the taxes we need to pay for SSI / Medicare from both corporate and personal paychecks as well as the fed / state deductions of the tax bracket. However we are 'directors', I am not sure how its done and if its possible.

It seems there is some case in Oregon that says that Directors of a company do not have to pay SSI and other ancillary things. However this would mean our tax bracket would go up based on how much more the company makes. We want to limit ourselves to 30% of the gross profits per month as our income (60% in total between us), rest goes towards running the company, aka: rent, utilities, conferences, air tickets etc. Stuff you pay for to run a company.

We wont need employees, at least for now, however when we do thats a different story. When we add an employee we will have to make sure he / she pays for her share by increasing revenue and it doesnt completely come out of our 40% corp operating cost budget.

Any suggestions?

 

[fuzzybabybunny]

i would like to know this as well. Single member LLC here but it probably will have employees at some time.

 

[Zebo]

I can try and answer as I've had both C and S corps. Don't worry about double taxation on a C, that's only if you retain earnings. You salary is a cost of doing business and fully deductible, just don't retain earning and you'll be fine. C's major advantage is fringe benefits not taxable as income to employee. You can start a college scholarship for all officers children and pay for college. You can have Cadillac HC plans. You can have country club memberships. You can have 100% medical reimbursement plans. Life insurance plans, etc etc etc. All fully deductible. Major disadvantage is logged meetings, cost and paper work. You definitely need an accountant.


You can always convert a C to an sub chapter S later when you start making truck loads of money.

Edit You're gonna pay SSI on everything you take out of an S up to 100K. You'll pay medicare on everything. It's pass through which means all profit is considered salary so lower taxed "dividends" do not apply.

You're also gonna pay SSI up to 100K again and other employment taxes on all salary you pay yourselves in a C corp. However you can pay out dividends after paying corporate tax on retained earnings. More or less it's a wash at lower corp profits even with the double taxation, again the reason to do it on a closely held corp is if you plan on lavish fringe benefits. Otherwise I think S is best for closely held. After you start making truck loads of cash you'll run into issues with IRS on a C corporation if you are taking unreasonably high compensation to try to avoid taxation at the corporate level. That's the time I'd switch to an S.

Not sure where you're getting this "directors" bit, you're either an officer or owner or both.

 

[JS80]

I can try and answer as I've had both C and S corps. Don't worry about double taxation on a C, that's only if you retain earnings. You salary is a cost of doing business and fully deductible, just don't retain earning and you'll be fine. C's major advantage is fringe benefits not taxable as income to employee. You can start a college scholarship for all officers children and pay for college. You can have Cadillac HC plans. You can have country club memberships. You can have 100% medical reimbursement plans. Life insurance plans, etc etc etc. All fully deductible. Major disadvantage is logged meetings, cost and paper work. You definitely need an accountant.


You can always convert a C to an sub chapter S later when you start making truck loads of money.

Edit You're gonna pay SSI on everything you take out of an S up to 100K. You'll pay medicare on everything. It's pass through which means all profit is considered salary so lower taxed "dividends" do not apply.

You're also gonna pay SSI up to 100K again and other employment taxes on all salary you pay yourselves in a C corp. However you can pay out dividends after paying corporate tax on retained earnings. More or less it's a wash at lower corp profits even with the double taxation, again the reason to do it on a closely held corp is if you plan on lavish fringe benefits. Otherwise I think S is best for closely held. After you start making truck loads of cash you'll run into issues with IRS on a C corporation if you are taking unreasonably high compensation to try to avoid taxation at the corporate level. That's the time I'd switch to an S.

Not sure where you're getting this "directors" bit, you're either an officer or owner or both.

Bolded is not entirely "true" unless you meant LLC.

 

[nanette1985]

What do your accountant and your lawyer say? That's what you're paying them for. I like to get my business advice from people who know what they're doing. I prefer to put my energy and focus into actually building and running the company, rather than stuff that isn't my area of expertise.

Best of luck with your new business!

 

[Barfo]

http://forums.anandtech.com/showthread.php?t=2208199

 

[sjwaste]

No offense, but this isn't a question for a dedicated forum, it's a question for either an attorney or a CPA licensed in your state. You might find information on the internet, but you need to vet it for accuracy. You don't want tax problems because something was overlooked, not relevant to your situation, or flat out incorrect. Tax problems are generally not something you can get to go away by telling the IRS you're sorry and didn't know better - you probably won't end up in jail, but you'll probably pay some penalties that some attorneys' fees up front would have avoided, and probably cost less.

 

[The Stigenator]

Well this whole problem started because his accountant embezzlement of funds out of the company account leaving him with nothing.

So we decided we're going to use my existing C-Corp that I have, which hasnt been doing anything than paying the 800/yr I've been paying to the state of california. We will create a DBA and run it that way until it starts up and then run a corp in its new name. Originally I started my company on the hopes of taking it some place new, but fact is that the software is yet to be ready.

Anyway my friends company currently makes some where between 15-25k/mo (thats his estimate since he cant get the actual numbers - this is based on numbers we saw when looking up the files in the accountants office). It could be higher but we arent sure.

So with that said where are the small business forums.


Zebo: Thanks

 

[BoomerD]

http://www.score.org/

 

[Fern]

So I have a technical question that I cant seem to find an answer to easily.

A friend of mine and I are planning (filing paperwork in 2 weeks) into a partnership / form a corporation.

The issue we are having has to do with LLC vs. S-Corp/C-corp. It seems when there is more than 1 party an LLC is considered as a partnership (LLP).

There is some confusion here.

First, let's look at the tax issues. An LLC can be taxed as a (regular) C corporation, an S-corp, a partnership or it can be disregarded entirely by the IRS (i.e., "disregarded entity") in which case the owner is treated as sole proprietor and reports the profit/loss on his/her personal tax return (usually a schedule C).

I.e., under tax law there is no such thing as an LLC. The term LLC refers more to civil law under a state's laws. LLC's are like corporations in that they provide limited liability (in most cases) to the owners. But they are different in other respects. LLC's generally have more flexibility under state law in how owners treat one another ("shareholder rights"). Since you mentioned this being a "partnership" one of those differences might be how you two partners might manage a 'break up". This is particularly important if it is a hostile split up. I've been a tax CPA for about 30 yrs, nearly every partnership eventually breaks up, therefore I strongly urge you two to consider how a dissolution should be handled in the event one later wants out. You two should consult with an attorney (and your CPA if you have one or plan to get one). This alone is worth the fees.

So, the IRS will treat the LLC as C corp, S corp or partnership. (technically the unincorporated sole proprietor option is available but is not worth discussing since I do not recommend it.) generally, you just file some paperwork with the IRS and tell them what you want to be. If you file no paperwork they will will automatically treat you as a partnership (since there are at least 2 of you).

Requirements regarding paperwork necessary to defend your limited liability status in the event of a civil lawsuit is generally said to be easier as an LLC.

If instead of an LLC, you create a corporation under your state's laws, you can be taxed as either a C corp or S corp. Here again, you need to file paperwork and tell the IRS which you choose. If you want to be an S corp, make damn sure that paperwork is filed immediately after receiving your incorp documents from your state office. Screwing this up is fixable, but it's a PITA.

LLC's general have slightly higher state fees (both startup and annual), corp's are generally cheaper.

We dont intend to go public so the S & C is kinda useless to us, however they do have some advantages and disadvantages associated with it. C Corps have the double taxation issue, which can be a problem. And S Corps we write the taxes on to our individual IRS tax filings.

It is very easy to start with an S corp, and then switch it to a C corp later.

There are few benefits to being a C corp. Health insurance is just as deductible in an C or S corp. Country club dues/membership is not deductible, not even in a C corp. Neither is paying for your kids "scholarships", that's asking for trouble.

A C corp is far more complicated than an S corp. You can easily find yourself in trouble unintentionally. An S corp is much simpler from a tax standpoint. The primary benefit of an S corp is the ability to save on SS. At 15% this may be substantial. And, of course no double taxation either.

Unless your business is real estate, I almost always recommend utilizing an S corp.

What we ideally want to do is form a corporate entity, and then we get paid as 'employees' rather than having to take money out of the corp to pay out expenses. That way we can allocate the taxes we need to pay for SSI / Medicare from both corporate and personal paychecks as well as the fed / state deductions of the tax bracket. However we are 'directors', I am not sure how its done and if its possible.

There are several ways to take money out of an S corp:

1. Salary. If you're actually working in the business you must take some salary, assuming you have the money to pay it. The IRS cannot force you to pay a salary. They can, however, reclass 'dividends' as salary etc if the company can afford to pay you.

2. Dividends. The profit earned by the business can be paid out as 'dividends' to the stockholders. Technically, they are NOT "dividends" under tax law -"dividend" is a highly technical tax term that is often misused by lay people - but we'll stick with that term. Since the profits of the business are taxed on the owners' personal tax return, you can take this money out anytime you want and it doesn't cause tax. Remember, you've already paid the tax on these profits.

Here's where the SS savings come into play: Let's say the business makes enough profit to pay you $100K. You take out $70K as salary subject to SS, and then take the other $30K as 'dividends' which is not subject to SS. This is a (tax) savings of $4,500. ($30k x .15)

If you were a C corp, there is no such savings because the $30K would taxed to the C corp by, at least, 15% before it could be paid to you. Then you pay tax on the $25,500 ($30K less $4500).

3. Return of capital. This is the money you put in to start the business. You can take it back out tax-free.

4. Loans. You can loan the business money and get paid back tax-free. You can borrow money tax-free. If you borrow more than $10K you must pay interest on the loan.

Re: withholding. The part of the money you take as "salary" will have the income tax w/h and SS w/h taken out and sent to the IRS.

For the part you take out as 'dividends' just have the business withhold (estimate) 15% and pay over to the IRS for your income taxes. But the entire amount, the part you receive and the 15% w/h part, are all considered a 'dividend' to you. There is no SS w/h or payment necessary for 'dividends'.

It seems there is some case in Oregon that says that Directors of a company do not have to pay SSI and other ancillary things. However this would mean our tax bracket would go up based on how much more the company makes. We want to limit ourselves to 30% of the gross profits per month as our income (60% in total between us), rest goes towards running the company, aka: rent, utilities, conferences, air tickets etc. Stuff you pay for to run a company.

If by "SSI" you mean Social Security taxes, no. (SSI is the disability income from SS).

Directors fees generally refers to payments to members of the Board of Directors. It's not really relevant here, but it IS subject to SS (as self-employment income).

Fern

 

[xeemzor]

As someone working in public accounting and who is in the process of studying for the the last section of the CPA I can vouch for what Fern has posted.

 

[JS80]

Well this whole problem started because his accountant embezzlement of funds out of the company account leaving him with nothing.

So we decided we're going to use my existing C-Corp that I have, which hasnt been doing anything than paying the 800/yr I've been paying to the state of california. We will create a DBA and run it that way until it starts up and then run a corp in its new name. Originally I started my company on the hopes of taking it some place new, but fact is that the software is yet to be ready.

Anyway my friends company currently makes some where between 15-25k/mo (thats his estimate since he cant get the actual numbers - this is based on numbers we saw when looking up the files in the accountants office). It could be higher but we arent sure.

So with that said where are the small business forums.


Zebo: Thanks

Why are you thanking Zebo for his bad/false advice?