tax question (mortgages, sued, corp, financial)

[emilybh]

Originally Posted by npumcrisz

Let us say I open up s-corporation or register my business as "Doing Business As" with only 1 employee -myself.

Questions

1. At the end of the year do I have to file 2 tax forms,1 for myself and the other for my business; or do I file only 1 ?
2. Is any one of you using Turbotax "Premier" to file your taxes assuming you are self-employed and filing only 1 tax form. I understand this program is a good program ?
3. Assuming I have to file tax forms separately; could one venture with Intuit products in filing business taxes ?

S-corps and LLCs usually aren't worth the bother. You STILL end up having to fill out an individual tax return IN ADDITION TO the one for the corporation. Also, you end up with fewer deductions you can take if you just remain a self-employed sole proprietor. You can still "do business as" (d/b/a) something else and get a federal ID number for your business as a sole proprietor.

One thing you won't be able to deduct if you do an LLC or a sub-S is your health insurance costs because what happens is they get passed through the corporation and ADDED AS WAGES to your individual return. But if you remain a sole-proprietorship, YOU CAN DEDUCT 100% of your health insuance costs AND you can set up and participate in something called a Health Reimbursment Arrangement (HRA) which would IN ADDITION, enable you to deduct, 100% of all your additional related out of pocket costs for healthcare and dental related costs like deductibles, etc. BUT IF YOU DO AN LLC or a SUB-S you CAN'T participate in an HRA -- only your employees would be able to.

[shuke]

So... has anyone figured out that a single-member LLC can file a Form 1040, Schedule C?

[npumcrisz]

Originally Posted by emilybh

S-corps and LLCs usually aren't worth the bother. You STILL end up having to fill out an individual tax return IN ADDITION TO the one for the corporation. Also, you end up with fewer deductions you can take if you just remain a self-employed sole proprietor. You can still "do business as" (d/b/a) something else and get a federal ID number for your business as a sole proprietor.

One thing you won't be able to deduct if you do an LLC or a sub-S is your health insurance costs because what happens is they get passed through the corporation and ADDED AS WAGES to your individual return. But if you remain a sole-proprietorship, YOU CAN DEDUCT 100% of your health insuance costs AND you can set up and participate in something called a Health Reimbursment Arrangement (HRA) which would IN ADDITION, enable you to deduct, 100% of all your additional related out of pocket costs for healthcare and dental related costs like deductibles, etc. BUT IF YOU DO AN LLC or a SUB-S you CAN'T participate in an HRA -- only your employees would be able to.

Thanks for the information

[emilybh]

Originally Posted by npumcrisz

Thanks for the information

No problem. The reason most people do LLCs or Sub-S Corps is that they are worried about liability and want to protect their personal assets from potential law suits. But I think if you are a one man band, they can still come after your personal assets, even if you have the corporation set up. So most people find that just getting plenty of insurance works just as well if not better and is a lot less hassle. There may be some tax advantages if you are expecting to make HUGE dollars even after all your business expenses are deducted - such as hundreds of thousands of dollars net profit every year. Then there may be some advantage if you kept your earnings in the corporation for example, that the profits would be taxed at a lower corporate rate than you'd pay if you were a sole-proprietor and then had to pay income tax on all your net profits based on the highest personal rate.

But there are plenty of retirement accounts, IRAs SEP IRAs Keough accounts you an set up and plunk a HUGE chunk of your earnings in those accounts and not have to pay income tax on that money so after doing that, even if you are boucoup bucks every year, you can squirrel most of it away in these tax advantaged retirement accounts.

[forest beekeeper]

Originally Posted by emilybh

...
But there are plenty of retirement accounts, IRAs SEP IRAs Keough accounts you an set up and plunk a HUGE chunk of your earnings in those accounts and not have to pay income tax on that money so after doing that, even if you are boucoup bucks every year, you can squirrel most of it away in these tax advantaged retirement accounts.

My understanding has been that IRAs have fairly small caps, limiting your annual contribution to very small amounts.

IRA Contribution Limits
YEAR . . . . . . . . AGE 49 [& BELOWAGE 50 & ABOVE]

2002-2004 . . . . $3,000 [$3,500]

2005 . . . . . . . . $4,000 [$4,500]

2006-2007 . . . . . $4,000 [$5,000]

2008 . . . . . . . . . $5,000 [$6,000]

[Padgett2]

Rules and regulations change with the wind. You would be very wise to seek the answers to ALL your questions from a CPA that specializes in small businesses.

What's right for one business, may not be right for you.

[emilybh]

Originally Posted by forest beekeeper

My understanding has been that IRAs have fairly small caps, limiting your annual contribution to very small amounts.

IRA Contribution Limits
YEAR . . . . . . . . AGE 49 [& BELOWAGE 50 & ABOVE]

2002-2004 . . . . $3,000 [$3,500]

2005 . . . . . . . . $4,000 [$4,500]

2006-2007 . . . . . $4,000 [$5,000]

2008 . . . . . . . . . $5,000 [$6,000]

For a SEP-IRA (a simplified employee pension IRA) you can contribute 25% of your income or $45k which ever is less. Contributions to a Keough which you'd do instead of a SEP would be the same maximums. You can also do a regular IRA and if you are 50 you can make an additional catch up contribution.

[forest beekeeper]

Cool.

25% can be a lot!

Thank you.

It looks like sole proprietor must pay himself wages, making an SEP contribution, which is limited to 25% of wages, which are profits minus SEP contribution.

[truckingbronco]

LLC is taxed the same as a SP if there is one owner and no employees. All you need to do to form one is file your articles of organization, there is no reason valid reason to choose a SP over an LLC (unless your state restricts it).

[emilybh]

Originally Posted by forest beekeeper

Cool.

25% can be a lot!

Thank you.

It looks like sole proprietor must pay himself wages, making an SEP contribution, which is limited to 25% of wages, which are profits minus SEP contribution.

What I do is take all my deductions. I don't pay myself a wage. I use my earnings as I go for both living and business expenses and just make sure to document everything separating business and pesonal expenses. So after figuring my deductions for business expenses, I see what my adjusted gross income is. Contribute 25% of that amount into my SEP-IRA and make another regular IRA contribution and then pay taxes including the self-employement tax on whatever remains.

If you don't maximize your SEP-IRA Keough contributions, you end up paying a lot more in taxes than you need to had you made the contributions.

By the way, this is what a 1099 employee/ independent contractor should also do -- who are technically self-employed, get no benefits, have no taxes taken out of their pay and usually paid on a commission basis.