Starting an LLC...how much to put in initial fund?

[Vcize]

I started really getting into internet marketing about 8 months ago. I'm about at the point where I'm ready to give up my full time job and do this full time.

I've made around $60k profits this year and am trying to figure out how that will factor into everything.

I'm long overdue in setting up an LLC, and one of the questions I'm asked when filing the paperwork for one is what the starting assets of the company are.

Do I list the whole $60k there? The whole point of an LLC is to protect your personal assets outside the company, so I would think that I would want to start the LLC with as few initial assets as possible (thus exposing less). On the flipside, it is possible or even likely that I'll end up investing a lot of that money back into new sites as I've been living off the money from my full-time job.

Am I thinking about this right? How will this all affect my taxes for this year with me starting the LLC late in the year?

I probably need to talk to an accountant about all this, but I figured most of the folks on WF have been through this before and could possibly offer some advice.

 

[JVHorn88]

If your making some real dough consistently, s-corp is the only way to go. Im a CPA and you can PM me if you want some more info but google will help you.

 

[Kdpelkin]

If your making some real dough consistently, s-corp is the only way to go. Im a CPA and you can PM me if you want some more info but google will help you.

+1, I have the same thing.

 

[JVHorn88]

Didn't think I would have time to post more about this tonight and I'm bored so figured I'd post some advantages of an S-Corp over a single-member LLC (what your talking about).

In a single-member LLC you are considered a disregarded entity and you file the information on your 1040 as far as taxes go. Straight to your schedule C.

Advantages:
-Simple to do
-Cost effective as you have no additional tax returns to file, tax return due April 15th (October if use an extension)
-LLC protection

Disadvantages:
-Cannot have most retirement plans linked to Schedule C
-High audit risk from the IRS if substantial income and/or fluctuating income (i.e. $80k one year and 30k next)
-You have to pay SE taxes on your net income. (an extra 13.3% in 2011, it was 15.3%)

In an S-Corp you are required to file an 1120S every-year, and it's a pass-through entity, meaning that the 1120S produces a K-1 that is recorded on your 1040, typically on the 2nd page of your schedule E. You are required by the IRS to take a "fair and reasonable" salary. The problem with "fair and reasonable" is that it is so obtuse of a definition. The rule of thumb is 60/40, 60% salary, 40% distributions.

Advantages:
-Super flexible
-May have retirement plans (you can in a single member but it's much more dicey)
-NO SELF EMPLOYMENT TAX
-"tax free" distributions
-Much less audit risk, I believe the last I read S-Corp's are audited about 75% less than schedule C's.

Disadvantages:
-Cost, you'll have to file an additional tax return, as well as payroll tax forms (since you'll be paying yourself a salary).
-Time, you'll have to spend a bit more time with the record-keeping.
-1120S is due March 15 (September if using an extension)

I'm not a lawyer, but from my experience the whole thing about legal protection with an LLC is a bit far fetched. If a legal team is coming after you, the LLC isn't going to be a super big deterrent from them going after you personally.

Also, I'd definitely suggest outsourcing bookkeeping to a CPA firm. You should be tracking expenses yourself, but having a set of books in the firm's hands gives a lot of advantages. Such as having all reports ready to send to banks for loans and IRS notices. Not to mention the professional set of eyes on expenses and income.

The price would all be dependent on the amount of activity, I'd estimate about $100-200/month would cover all bookkeeping/payroll reporting, year end tax planning/compliance, and you'd probably have to pay about $500 for the 1120S and your 1040 combined when tax time came up.

If you did all bookkeeping and payroll yourself, I'd probably expect you to pay around $750-1000 for the 1120S, year end tax planning, and the 1040.

If you go the Schedule C route it'd probably be about $4-600 if you kept up with everything. (Again all this is dependent on how much time you take keeping books in order and activity in total you have)

Lastly, if you are going to do the S-Corp, you have to file the election before the 16th day of the third month after electing to be treated as a C-Corp form 2553 (don't forget to file in your state as well if you need to)

DISCLAIMER: I am a CPA, and this is all free advice that would normally cost you an hour's worth of billable time, however information from this post should not be taken as professional advice, and as such you are urged to seek a "paid" professional's advice etc. etc. so don't fucking sue me if you mess something up.

 

[Zaino]

Lastly, if you are going to do the S-Corp, you have to file the election before the 16th day of the third month after electing to be treated as a C-Corp form 2553 (don't forget to file in your state as well if you need to)

DISCLAIMER: I am a CPA, and this is all free advice that would normally cost you an hour's worth of billable time, however information from this post should not be taken as professional advice, and as such you are urged to seek a "paid" professional's advice etc. etc. so don't fucking sue me if you mess something up.

Good advice!

I dont think he would need a C corp though.

 

[JVHorn88]

I don' remember the rules off the top of my head, but I'm pretty sure you have to originally file as either a C-Corp or an LLC that's elected to be treated as a corporation instead of a partnership if I'm remembering correctly. I'll look it up sometime tomorrow.