Business Entity (incorporate, fees, insurance, proprietorship)

[Rapture]

I need help deciding on what type of business entity to set up. First I'll explain my situation...

I have an internet retail business, web design business and I just became a realtor. By the way, I am not advertising I truly need help with this.

I've read about S - Corps., C - Corps., LLCs, Partnerships etc... spoke to an accountant and several people that have businesses. My goal is to have the least amount of liability, with the most tax advantages. No surprise that's what everyone wants.

I have a partner with the retail internet business but the rest is just me.

Some have said set up an S-Corp. with an LLC. Others have said I don't need an S-Corp unless or until I'm making a decent income and have employees. I do not have any employees but wouldn't I still have the most tax benefits with an S-Corp? Wouldn't my partner and I be considered the employees of the company? Also, do I need an S-Corp to do and LLC? I didn't think so but someone told me I did.

Whatever I set up should I include all of my businesses or keep everything separate?

As far as the real estate, should I even set up a business entity?

This is so confusing and I appreciate and help.

[autumngal]

An LLC sounds more fitting for your situation and with your real estate side of business I would keep that seperate and be a sole proprietor, unless of course you hire assistants etc.

[sunsprit]

Unless your products require that you have a "corporate umbrella" to shield you from liability of some sort, any form of a corporation is a loser for you.

You have the costs to incorporate, filing fees, yearly corporate fees, reporting, and two potential layers of taxation to deal with. It's not just income taxes, either ... there's other taxes that you may have in your state with inventory or equipment or office that may be corporate taxed.

Being a sole proprietor is the most cost effective and simplest way to be in a small business that has little potential for risk exposure. You may find your homeowner's liability policy is more than adequate for your needs, too.

I get a manufacturer's rep policy for my home based business as a sole proprietor and it costs me $600/year. I get it only because some job sites require I have insurance on myself to cover any potential accident at their place of business ... even though I'm just the product rep, not an installer.

Check with your broker about professional liability exposure/coverage. Most realty brokers have an E&O umbrella policy that covers you as their agent for your performance under their license.

[mainebrokerman]

Originally Posted by Rapture

I need help deciding on what type of business entity to set up. First I'll explain my situation...

I have an internet retail business, web design business and I just became a realtor. By the way, I am not advertising I truly need help with this.

I've read about S - Corps., C - Corps., LLCs, Partnerships etc... spoke to an accountant and several people that have businesses. My goal is to have the least amount of liability, with the most tax advantages. No surprise that's what everyone wants.

I have a partner with the retail internet business but the rest is just me.

Some have said set up an S-Corp. with an LLC. Others have said I don't need an S-Corp unless or until I'm making a decent income and have employees. I do not have any employees but wouldn't I still have the most tax benefits with an S-Corp? Wouldn't my partner and I be considered the employees of the company? Also, do I need an S-Corp to do and LLC? I didn't think so but someone told me I did.

Whatever I set up should I include all of my businesses or keep everything separate?

As far as the real estate, should I even set up a business entity?

This is so confusing and I appreciate and help.

rapture i have an s-corp, and also an llc,,i consulted with a business/tax lawyer first, (you may be fine with an LLC)
id recommend you talk to a lawyer for a half hr,,,ask many questions.
rapture,,congrats on being a real estate licensee,,,!!! dont wait too long before you go for your associate brokers license,,,you will forget alot!
good luck !

[Rapture]

Thank you.....I'm so overwhelmed with everything right now. Somehow I still find time for City-Data : )

Do you know if I need an S-Corp to do the LLC? That is really confusing me.

[mainebrokerman]

Originally Posted by Rapture

Thank you.....I'm so overwhelmed with everything right now. Somehow I still find time for City-Data : )

Do you know if I need an S-Corp to do the LLC? That is really confusing me.

no i dont believe so....each has its strengths and weaknesses, depends on the application,
the tax ramifications of both these ownership entities, are extensive,, you need to talk to a lawyer,,,,cause no matter what you hear here, a local (instate) lawyer should be advising you, this is serious stuff,,,also keep in mind,,,you can have write-offs!
good luck

[mbuszu]

Originally Posted by sunsprit

Unless your products require that you have a "corporate umbrella" to shield you from liability of some sort, any form of a corporation is a loser for you.
You have the costs to incorporate, filing fees, yearly corporate fees, reporting, and two potential layers of taxation to deal with. It's not just income taxes, either ... there's other taxes that you may have in your state with inventory or equipment or office that may be corporate taxed.
Being a sole proprietor is the most cost effective and simplest way to be in a small business that has little potential for risk exposure. You may find your homeowner's liability policy is more than adequate for your needs, too.
I get a manufacturer's rep policy for my home based business as a sole proprietor and it costs me $600/year. I get it only because some job sites require I have insurance on myself to cover any potential accident at their place of business ... even though I'm just the product rep, not an installer.
Check with your broker about professional liability exposure/coverage. Most realty brokers have an E&O umbrella policy that covers you as their agent for your performance under their license.

I don't think given the business descriptions we were given at the top of this thread that this is sound advice at all. As a sole proprietor he'd be missing the boat when it came to liability coverage, annual vs quarterly filing benefits, and numerous tax deductions/benefits. Filing for LLC is not arduous, nor does it require a lawyer. In fact for the cost you pay a lawyer, do you know what they actually do? - they will just download the forms from the Internet, have you fill out and sign, and then mail them out for you.

A good personal CPA on the other hand is exactly what you will want to seek out. One which has good knowledge of small business taxes (many do). They will not lead you astray and when you go to file your personal taxes every year, you'll be able to file your small business taxes at the same time in the same meeting. A good CPA will be cheaper than a lawyer despite the ardous-sounding "two layers of taxation" - in fact it will be a piece of cake. All the filing fees and costs to set up your business in fact will be tax deductible as well.

[Rapture]

Originally Posted by mbuszu

I don't think given the business descriptions we were given at the top of this thread that this is sound advice at all. As a sole proprietor he'd be missing the boat when it came to liability coverage, annual vs quarterly filing benefits, and numerous tax deductions/benefits. Filing for LLC is not arduous, nor does it require a lawyer. In fact for the cost you pay a lawyer, do you know what they actually do? - they will just download the forms from the Internet, have you fill out and sign, and then mail them out for you.

A good personal CPA on the other hand is exactly what you will want to seek out. One which has good knowledge of small business taxes (many do). They will not lead you astray and when you go to file your personal taxes every year, you'll be able to file your small business taxes at the same time in the same meeting. A good CPA will be cheaper than a lawyer despite the ardous-sounding "two layers of taxation" - in fact it will be a piece of cake. All the filing fees and costs to set up your business in fact will be tax deductible as well.

I do have someone and they will do the LLC for $150.00. I just want to make sure that's the right thing to do. Also, she told me I need an S-Corp in order to have an LLC (or maybe I misunderstood). I don't have employees so do I still need an S-Corp? Also, will I benefit by having both?

[MamaGecko]

You do NOT need an S-Corp to do an LLC... the S-Corp is purely a tax concept. You incorporate under state law, then you can, if you choose, elect S status under the tax laws.

In general, an LLC offers the most protection with the least fuss... you can form an LLC, then (presuming a single owner, referred to as a "member" of the LLC) file your taxes as a sole proprietorship. In that case, the LLC is completely ignored for tax purposes. Or you can elect, under the tax law, to treat the LLC as a corporation. In that case, you would file corporate 1120 forms, or you can then elect S Corp status and the LLC would then file an 1120-S and the income would flow through to the owner/member.

LLCs, in general, offer more protection than a regular corporation because there is no requirement that the owner's adequately capitalize them. In the event of a lawsuit, this is one less avenue that can be used to pierce the corporate veil.

You should be working with a CPA and an attorney who specialize in small business startups, and who can look at your individual tax situation. While an S corp may be beneficial in some situations, it is by no means beneficial in all situations. Only someone experienced in small business taxes can make recommendations based on your individual circumstances.

Oh, and yes, each business should be in a separate entity for greatest protection.

[MamaGecko]

Originally Posted by Rapture

I
Some have said set up an S-Corp. with an LLC. Others have said I don't need an S-Corp unless or until I'm making a decent income and have employees. I do not have any employees but wouldn't I still have the most tax benefits with an S-Corp? Wouldn't my partner and I be considered the employees of the company? Also, do I need an S-Corp to do and LLC? I didn't think so but someone told me I did.

I missed a couple of your questions...

Generally, S Corps are used in the early years of a business, when the business is throwing off losses. By using an S Corp, the losses flow through to the owners and can be used to offset other taxable income on their individual returns. Generally, when a company starts to make money it becomes more advantageous to switch to a C Corp. There are many exceptions; you can make distributions from an S Corp without declaring a dividend, so there is an opportunity to avoid the double tax that would normally be incurred on a corporate distribution. There are, however, a number of tax saving strategies that can only be accomplished via a C Corp (also the ability to deduct the normal employee benefits, which may have limited deductibility with an S Corp).

Obviously, there are many, many complications and much depends on your individual tax situation and goals. You need a CPA experienced in small business start ups and corporate taxes to advise you. And beware... many small CPAs (and EAs for that matter) do primarily personal taxes, partnerships, and S Corps. A lot of them don't handle many C Corps (and some will, unfortunately, simply steer a client away from a C Corp rather than referring the client to a more experienced CPA). To get good advice you need someone experienced in regular C Corps. When you interview a CPA, ask how many regular C Corps they handle in a year. If it is only a handful, look for someone with a larger practice.

Now that's not to say you will want to go with a regular C Corp... but you want someone experienced with them so that you can get good advice on the pros & cons.