Ive been pondering the possibiltyof incorporating mysrlf. Here in the state of N.C. for 125 dollars you can file with the sec. of State and bam thereyou are. Not, not reallly, they say you can do it without a lawyer, seems difficult to me. Any good recources out there( books, people,ect.) on this kind of stuff. Bobby
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You need to talk to a lawyer and accountant.
If it is to protect your assets from the business's liabilities, it generally doesn't work
A shareholder of a corporation isn't liable for ther liabilities of the corporation AS A SHAREHOLDER. If you personally do the work, you're personally on the hook for any liability which results.
But, these legal principls vary from place to place and the numvber of factors to consider are widespread and diverse and obscure. IMO, you need professional help.
_______________________
"I may have said the same thing before... But my explanation, I am sure, will always be different." Oscar Wilde
I think it is good idea for your personal asset protection and tax savings.
As long as you pay your self a reasonable wage as an employee of the company and separate your personal and business books and finances, you should be able to maintain the corporate protection. I don't necessarily agree Bob Walker in the previous post, however as he stated things are different in certain areas of the country.
The tax thing can more than pay for the accountant and lawyers fees.
Say you bring home $60k now. So you pay 15% Social Security(Self Employment Tax) or $9k. That's not even taking into account Income tax. Under the Corporation, You could pay yourself as an employee say $40k as salary and $20k as distributions(like dividends). You would only pay the 15% SS tax on the $40k, not the additional $20k.
So you could save the 15% on the $20K or $3k.
It cost me about $400 in lawyers and $600 in tax prep for the first year.
Didn't mean to get long winded.
Good luck.
"I think it is good idea for your personal asset protection and tax savings."
I really don't know how you could say that without knowing anything about him or his business. You gave one single limited example but that doesn't cover all the bases. Bob W gave much better advice. You really need to run the nunbers for each individual considering this.
I was inc-ed once before and luckily, it was OK for me but it was a pain in the butt.
I have considered iot the last two years but when I look at it, I find that there are other costs beyond setup. There is a maintainance cost. There is extra insurance cost. There is a paperwork cost. Don't forget the recordkeeping and the real estate that filing cabinet takes up. There are higher fees for some things.
For me I need to consistently break over a third of a million a year to make it worth while to Inc. I've barely done that two of the last five years and I am consciously trying to do less volumn and higher profit so I don't see a "Piffin, Inc." on the near horizon.
A legal beagle and a bean counter can analyse the situation and help decide if the hassle is worth while..
Excellence is its own reward!
the "thing" now seems to be to be an LLC I use to go with the corporate deal... but not sure that it's worth it... it's usually not much protection... if you do have to go to court on even the most minor thing you have to have a lawyer... you must keep minutes of corp. meeting and you must have them (the meetings) if you don't act and conduct your business in a "corporate way" the courts can and will treat you as not being a true corporation and the protection of the corporation can be lost...fast
I also think if you don't find a way for the corporation to operate at a loss, then you will pay taxes on the money you earn twice... all the tools that you think of as "yours" really aren't they are assets of the corp. as far as the protection thing goes... I'd prefer to buy good insurance and try to do things right and avoid any contact with any lawyer or the court... some protection can be had in setting up a living trust...but thats another subject.
one more thing under the same rules you can "act as a corporation" without being incorporated and the courts will treat you as a corporation... and it's pretty easy to incorporate ... it is a simple do it yourself deal and there are companies who will do everything furnish stock..minutes book...ect all you do is fill in the blanks and send in the info ...usually to your states sec of state...
btw... i wouldn't
pony
started out with nothing and have most of it left
>> You gave one single limited example but that doesn't cover all the bases. Bob W gave much better advice. You really need to run the nunbers for each individual considering this.
Yes I could have included many other scenarios with variables. The object was to provide an overview of a situation that worked well in my case. We all want to share things here that work well.
I do agree that each situation should be reviewed with an accountant and lawyer, as I insinuated with amounts I had recently paid.
>>I am consciously trying to do less volumn and higher profit
I think anything that can potentially increase your net margin by nearly 15% is a great place to investigate.
And I'm sure it wasn't luck that got you through last time, it was your skill and experience.
"... potentially increase your net margin by nearly 15% is a great place to investigate"
I still don't think you really see my point. Supposing that I save the 15% fica on my income and supposing that it is $20,000 that we adjust off. That is out of maybe $172,000 to $300,000 gross.
So I save maybe three grand out of three hundred grand. That's one percent or so, not fifteen percent.
Then I have a thousand or more in added insurance costs every year to do it. Then you add the extra week of bookkeeping every year, a couple hours a week, and that week of my wages is gone to supporting the corporation. It's a wash.
Now if my gross were six hundred thousand and I could shield $50K from the fica, while the corporation managrement costs were approximately equal still, then it becomes doable with a big incentive.
Last time around, well I lost about seventeen grand on that venture so I guess I won't talk too much about it - but suffice it to say that a lot of my knowledge and experienced you speak of came out of that mistake. One of those lessons learned was, "Always run the numbers. Don't lean on generalities.".
Excellence is its own reward!
Hey man, I'm in NC too. I was sole proprietor, I went to an accountant, he looked at my tax returns, said "wanna cut your this in half?" I said "yep". He said "incorporate". I said "sign me up".
Lawyer cost me 650 bucks, accountant costs me about 1500 a year, and I'm still saving money. S-corp.
My wife did it herself, $135. NC will give you everything online. It took a little longer, but it appealed to her thrifty nature.
Talk to an accountant, all a lawyer wants is yer bucks, they don't care if it's in your best interests or not.
Good luck. EliphIno!
Asheville N.C., Yeah, I am familiar with the do it yourself method However, Niot sure about issueing stock, setting up meetings, bylaws, ect. Went to the Sec. of State web site. They tell you what to do, just not how to do it. Thanks Bobby
Jester,
We are here up in Mitchell County. Went to a lawyer last year to see about setting up Inc. or LLC. He told us that LLC is "in" and that being a sole prop. that we really didn't need it. He also said that as far as Inc. it could help us on taxes, but as far as protecting assets etc. forget about it. Any good lawyer will get around the Inc.
Just my two cents. Yeah Cloud Hidden is in Asheville also. Didn't know if you knew that or not.Tamara
S-corps are what most of us are talking about not C-corps. The requirements and start up costs are rather modest. "Stock" is managed in a spreadsheet if at all. "Meetings" are held and recorded at your desk. (Typical meeting: "Lets adjourn until next year.") The tax forms are simple if you keep reasonable records.
The tax savings is obtained by classifying income to the owners as dividends rather than wages.
Your accountant is the best person to look at your situation and give advice.I got the room built. How do I get outside?
"The tax savings is obtained by classifying income to the owners as dividends rather than wages. "
You have to be careful and reasonable here. If you materially particiapate in the day to day operations, you are expected and must pay yourself a reasonable salary. It would not be considered reasonable if you worked fulltime and paid yourself a wage of 20k, and distributed dividends to yourself of 50k. In this example of 70k total, you would be less likely to an audit if you pay yourself a 'reasonable' 45-50k, and a dividend of 20-25k.
Don't be greedy, and have the tax monster take a bite out of you.
Jester, It's not really too complicated, and, the right accountant can be your best friend. NC is trying to grab every penny they can right now, they audited me, my accountant fielded all their questions and essentially told them there was nothing to see here, move along. I woulda freaked if I had to do that myself....and I'd bet there's some web sites that could fill you in on a bunch of specifics. As was mentioned, don't try to get greedy, you'll get questioned...stocks are a non issue, monthly meetings are recorded, we distribute profits instead of issueing dividends...just find an accountant who says it worth doing. After reading these other replies,it sounds like you do have to look around.
Again, good luck EliphIno!
jester, i was sole prop. for about 25 years.. never made a dime..
i finally went S-Corp and started running my company like a business and me as it's most valuable employee.. this is my fourth year as an S-Corp
two things i've never regretted.. ok three things in business..
1) having employees
2) hiring a payroll service
3) incorporating
i think it costs me about $600 a year more than a sole prop... i don't pay any more insurance.. i pay my accountant for a corporate return, and my lawyer about $100 a year to file the Annual Report and type up the minutes.. both of which i could easily do.. but i like having a relationship with my lawyer...
i think i have a different mindset than i did as a sole prop. .. i could have done the same thing without incorporating.. but i never did.. this was all part of my overall plan to turn this into a business instead of an expensive hobby..Mike Smith Rhode Island : Design / Build / Repair / Restore
Mike, So was it the mind set change or the corp that made things better for you ? I run my sole prop like a corp anyway, paying self a salary, etc. My extra insurance is that I would have to cover myself on workers comp. Also, it used to be that phone service and lots of other things got charged a premium if incorporated.
.
Excellence is its own reward!
piffen , it was a combination of the two.. and i do cover myself with WC, i am the most valuable employee , no ?Mike Smith Rhode Island : Design / Build / Repair / Restore
That is true but the rates are very high, but deductible.
I've been loking at it like this, In all my injuries, when working for others, I could never hope to live on what WC paid me so I ended up doing little side jobs while healing up. I'd rather put that same money ion mny own set-aside fund for contingencies..
Excellence is its own reward!