Ok, gents. Need some advice.
Have an S-corp here in NJ for the past 3 years. Never used it. Now going legit and paying up (I REALLY never used it) and the new number cruncher says to switch to an LLC.
What do you guys have, especially guys in Jersey?
An LLC costs more in self employment tax but less in unemployment.
Thanks .
Glenn
Replies
My accountant said S-corp over LLC, don't remember the exact reasons. Of course, this is Illinois law, not Jersey.
“The richest genius, like the most fertile soil, when uncultivated, shoots up into the rankest weeds..†– Hume
LLC doesn't give dividends so all profits are taxed as salary and you must pay social security on all of it. S-corp can pay up to 50% of owners salary as a dividend with no social security due. It's like getting one third of your income at a reduced tax rate.
Only really matters if you are profitable though.
Accountant told me that as an LLC I would save at least the $500 corp fee for NJ. He also said I wouldn't have to pay unemployment tax as an LLC.BUT, as an LLC, I have to pay SELF employment tax on ALL the money.I'm trying to decide which is the better choice.Glenn
S corp in nevada, then apply as a nevada corporation to do business in whatever state.
nevada is better even than incorporating in delaware for a small business, many advantages to an s corp as far as taxes, all medical benefits are paid before that money is taxed by corp, and not taxable income to employee, on and on and on.
my source is "own your own corporation" by Garrett Sutton, ESQ. This book is one of the "rich dads advisors series" reccomended by robert kiyosaki, author of rich dad poor dad. i got it at amazon for less than 15 bucks i think, price tag on book is 18.
Chapter 4 is titled "Using nevada corporations to your maximum advantage and the benefits of multiple corporation strategies" there is a long list of thigs that will help you legally avoid taxes if your business actually does show a profit.
When you first form an LLC you can elect to be taxed like an S corp. That would give you the tax advantages of an S corp and the ease of operation of an LLC. At least that's the case here in Washington.Romania wasn't built in a day.
Jim, did you form a corp or LLC? I remember we were talking about that at the show...
Yeah, LLC. It was a good fit for what we wanted - isolated assets especially.Remodeling contractor who once visited the Glass City.
There are two aspects of being either an S Corp or LLC. One is the financial which your accountant has discussed and the other is liability management which needs to be addressed by your attorney.
Frankly if all you are concerned about are the costs, then why become a company. The liability protection of a company is the primary reason to incorporate. Understanding how the S Corp or LLC protects you best is important.
We selected to be an S Corp as it provides the best legal protection and as mentioned earlier, you can earn both a salary and get dividends that are taxed at a different rate.
When I was studying this, I was astounded at the range of answers I got from multiple CPA's and attorney's. I guess it all depends on what is most important to you.
Bruce
excellent points, i have to confess i am no expert here, it helps me understand by trying to explain to others.
the one thing i got from my research into business structure is that nevada has the best anonimity. nevada is the most aggressive state about this, and it relates to liability management in that you have more protections in nevada.
an attorney will have the most difficult time piercing the corporate veil in nevada vs any other state all things being equal.
and thats what i'm talking about when liability management is mentioned.
there are strict rules to follow to be in compliance, i believe it was james pio who posted that he had pierced the veil when he found out about the owner giving the old work truck to the teenage son without properly reporting the sale or some such.
all of that information gathering that "they" use against you will be the most difficult in nevada of anywhere else.
i think i have found the best structuring strategy here, nevada S corp, i would love to hear that there is a better one, if you agree or disagree. thanks.
Hello all,
I'm not a US acct (I'm actually a Canadian account), but here it goes. The liability issue definately needs to be addressed thoroughly with a corporate lawyer, however both an S-Corp and an LLC you may be personally liable b/c you can "pierce the corporate veil".
Also - you could also go to another accountant to get their opinion on it to make sure your accountant is considering everything. My comments are only general as I am not an expert in US tax, however I do come across it from time-to-time.
Both the S-Corp and the LLC have "flow-through" characteristics, therefore from an income tax perspective, they are attractive. Generally, income from these flow-throughs will retain the character it was when it was earned (i.e. business income, etc.). There are many other considerations to address, like what your "basis" of the investment is in both cases, which can later affect how you can get the assets out of the business, and the associate tax costs of doing this.
Also, keep in mind that the S-Corp needs to file a corporate income tax return everything year, where a single-person LLC does not. If it's a multipe person LLC (i.e. a partnership), then the LLC will have to file a tax return, so you would be cost neutral in this case.
As discussed, the LLC can make an S-Corp election (and so can other corporations). This S-Corp election would be applicable until the election is revoked, or the company loses it's S-Corp status.
Assuming it would be a single-person LLC, then the annual compliance costs for the S-Corp would be a differienting factor, not considering the legal aspects.
Hope this helps, and if anyone has any Canadian income tax consequences, I would love to help!
In my research, the S-corp was the best suited for our company for liability protection and for tax purposes. As my attorney explained to me the LLC has some features that have less liability protection. Tax wise it was almost a wash for me.
I have always found this discussion challenging because I always feel like I am trying to hide something or avoid responsibility from some evil doings when in reality, if I could, I would love to work on a handshake and reputation. Unfortunately, if you experience any degree of success, the first thing you have to do is protect yourself from some lawsuit happy SOB who is trying to screw you.
I would guess many on this board feel this way, and frankly this is the cost of doing business.
Bruce
Tashler,
I've had an LLC based out of PA when I did a lot fo work in NJ. My LLC wasn't worth the effort.
Just a suggestion. If your working alone or with just one guy, it may not be worth it to be either for a lot of reasons that would take forever to explain.
Before you decide, you need to also talk to your lawyer and insurance guy and probably an investment counselor.
Taxes is just one piece of the pie. How will each effect your insurance coverage needs? How will each seperate you from liability? How will each effect retirement planning? How has the court in your state treated each in respect to those questions?
Lots of people told me all about how an LLC was just like an S-Corp. It wasn't. Not in PA anyway.
Guys who make the decision based on just tax implications may regret it later.
Thanks, Robert.I have the S-corp already, and think I will keep it for now.
Where are you in New Jersey?
Wanaque. Passaic Co. Near Ringwood. Know it?I was reared in Pompton Plains.
Yup,
Lived in Kearny, North Arlington, Fredon, Stillwater, Berkley Heights and New Providence.
Parents live in Hackensack now. Not sure why but they have a corner penthouse so I guess that makes them happy.
Brother's in Bergenfield.
When I was MUCH younger I used to work for John Feher roofing and Siding out of Denville. Traveled all over northern NJ. There wass time when we serviced like 85% of the big new construction jobs north of 78.
Denville isn't far. Hackensack isn't too far, but I know what you mean. Not a great area.The others are either further than I usually go or not places I really like, such as Bergenfield. Too dense and crowded.Boy, you moved around alot.
Tashler,
Just to add an additional $0.02 to the conversation, you mentioned earlier that you have had your S corp for a couple of years. Unless you have kept up with the paperwork i.e. annual meetings etc. your S corp may not provide any liability protection anymore since the entity did not act like a company.
Just something to consider.
Bruce