HOW is your business entity set up?

Zesty1

Zesty1

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Dec 24, 2008
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I recently just hit my first $1,000 profit day and it's time for me to start thinking about incorporating.

Yes I'm familiar with the common answer "talk to a CPA." I want to know from guys who have their shit together in a way they like first though, so I have something to talk to the CPA about.

Here's what I want

1. Lowest taxes (legally... no offshore sketchy shit)

2. Protection. This is important I guess but not all that important... I'm not doing really any blackhat to worry about but it's always nice to have some coverage. This really isn't the main issue though. The main issue is I want to pay the lowest in taxes possible.

Now my questions

1. I live in California, which is the fucking worst state... I don't even have to look it up.. I already know..
I could incorporate in deleware but I'm not even sure WHY. I think it's because it's the most common law so all the lawyers are quite familiar with it..
But also if I incorporate out of state doesnt that make it quite difficult?

2. LLC or Scorp? (or something else...?). I don't plan to have employees any time soon.. just me and a business entity. I heard if I make an LLC/Scorp umbrella entity I can get my taxes as low as 25%. Has anyone heard of this?
 


1. Incorporating out of state will not allow you to avoid the CA franchise tax that CA registered companies also pay. Your business will also pay CA state taxes if it has nexus in CA.

2. Incorporating out of state will hurt your ability, as a small company, to gain business credit.

3. Yes you can manipulate your tax rate by using various entities but also factor in the added corporate costs and especially accounting fees from having exotic structures.
 
I went with an S-Corp.

Why? I have no fucking clue. Just did what my CPA told me too.

I suggest you do the same : )
 
A franchise tax I guess I'm not AS concerned about. 800 bucks sucks but for the whole year I suppose that's not all that big a deal...
 
I'm in the same boat as you zesty ..... i think i'm gunna go w/ an LLC, but i really don't know which is best for tax benefits
 
I heard paying only like 25% in taxes if you get an s-corp and pay yourself a salary, and leave the rest in the bank.. something like that
 
I've got a LLC taxed as an s-corp. I don't know a lot about it but it's supposed to save you some money paying taxes.
 
Well and LLC is pass through revenue,, so if your the only manager of the company 100% of the profits pass through to you and you are responsible for the taxes. In that case if you make 300k at 35% Fed, you also pay ss and fica on the 300k. Plus State

Now with an S-Corp you state in the docs your salaried at 100k a yr, then you only have to pay the fica, ss on the 100k then the rest ( atleast the way we have it) is considered bonus which allows for tax savings. And it may not sound like a lot but when you generate high 6 low 7 figs a yr that extra SS taxes and shit adds up/
 
Zesty1 said:
I heard paying only like 25% in taxes if you get an s-corp and pay yourself a salary, and leave the rest in the bank.. something like that
Click to expand...

It doesnt matter if you leave it in the bank or not, it is still income the company made. But for this same reason it is why most use and llc or s-corp, if you go with a regular corporation then you get into double taxation as the company pays first then you pay again.
 
S-Corp. Did it myself at my state bureau offices and named myself as registered agent until I go over things with my accountant and choose attorney/registered agent that I'm comfortable working with. Very easy to set up, I pretty much downloaded the forms from the state website and skimmed this book I downloaded:

hxxp://rapidshare.com/files/11151011/Incorporate.Your.Business.When.to.Do.It.and.How.pdf
 
Example...

The "Business" Earns 1 million + a year...
Your Salary is 20k a year...

You just saved a shitload on taxes.

Although if you try and cheat the system that much your probably going to attract some unwanted attention : ) lolz
 
If your even considering tax avoidance, go see a specialist / expert. Don't want it becoming evasion or anything illegal.
 
LLC is better for protection. I've talked to numerous lawyers and that's what they recommend. It's also cheaper to start and maintain.

The "Business" Earns 1 million + a year...
Your Salary is 20k a year...

You just saved a shitload on taxes.
Click to expand...
Actually, no because your money is still in the business. As soon as you withdraw it (whenever that will be) you'll be taxed on it.

Everything you charge your business for needs to be business-related. If there is sufficient evidence that you're using the business as your personal checking account, then a creditor could attempt to "pierce the corporate veil," essentially claiming that you are not entitled to liability protection.

Two ways to withdraw money out of your business as a very small (1 person) business:

1. Ownership withdrawal of funds. Downside is that you have to pay self-employment tax on top of your regular tax, usually 15% additional.

2. Salary to yourself. Downside is that you have to match the taxes which your employer (if you had a normal job) would be paying. It's an additional 15% or so.

Of the two what I recommend is to schedule regular salary transfers to your personal accounts, so you are taking money out of the business, but doing it in a structured way, so that you have the most options. An example is automatically transfering $10k on the first of every month to yourself, and setting it up as a recurring transfer.
 
Great replies in this thread, thanks a lot.

I really wish I knew what the last reply meant in lamens terms :X

Ive never done my taxes before, but I spose it's time I learn.
 
S-Corp is the way I went, as you save a bunch of money not paying the self employment taxes. I pay myself a normal yearly salary for someone with a position such as mine, then the rest I pay myself in dividend payments, which are taxed slightly less then salary.
 
I'm in California and recently up an LLC in California. Everything I read made it sound like trying to set it up in Nevada or Deleware was going to be a huge pain in the ass. I did it all on LegalZoom.com. They walk you through 99.9% of it and it will cost you about $600, but they apply for everything you need.

In addition to the $800 you have to pay by the 4th month after you form the LLC, there's a $195 Statement of Information filing fee, a few other misc fees. You'll also need a local business license for your city. After 6 months, you'll have to pay the city a fee based on your profits. It's small something like $10 for every $1000 in profit you claim.

Other than this, I have no idea about working an LLC to help save myself tax money. I bought LLC for dummies and need to dig into it learn a few things. It's going to be nice to deduct part of my mortgage, utilities, gardner, home improvements, etc. since my office is at home. My wife works from home, although not for herself, and because her office space is X percentage of the square feet of our home, we deduct X% off every cost related to the house. It works out very nicely and is completely legit.
 
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