Any Opinions on Setting Up an S Corporation?

[Newby]

I am of the understanding that an S corp helps me more than an LLC because I am not married. I only have to have E&O once. and it is a bit more tedious went doing appointment paperwork for each company.

You can do an LLC but taxed as an S Corp and keep it simpler. If you are going to license your agency in a lot of states it is a lot more expensive and complicated than as an individual.

 

[cadylou]

You can do an LLC but taxed as an S Corp and keep it simpler. If you are going to license your agency in a lot of states it is a lot more expensive and complicated than as an individual.

That's what I did -- LLC with S corp exemption I think.

 

[1reason]

I've setup a few corps (both C and S) over the years and there are advantages with a separate entity beyond FICA, versus a sole prop. You have retirement and health options that you may not otherwise have.

It's "easier" to pay yourself interest on loans to the company (start up costs for example). Rent for office, although home office deduction comes into play also.

If someone wants to sue, they're often looking at going after the corporation instead of you (although I think both will usually get named).

Filing taxes isn't as easy (maybe), but (I think) anyone who can explain the nuances of insurance is likely able to understand how to enter amounts into Turbo tax or another business/personal tax program, or at least bookkeeping so that an accountant can take care of the rest.

 

[Longtimeagent]

My accountant (first time I've used one) said an S-Corp was a waste of money and wouldn't save me much except for self employment taxation. I'm figuring I'll be owing around 9-11k this year in taxes. I'm hoping. It could be more. That's more than I would like to pay.

I have several people in my network that use S-Corps and swear by it. I went on legal zoom and in NC it's about 700-900 to get it set up with all the filing fees and paperwork necessary to stay legal. There are some other expenses that would be minor (under $100) total that would help but I think just make LZ lots of profit.

Paying yourself a small salary - like 15-20k? Helps the corp pay most of the tax on your income instead of you right? That's the benefit is the corporate tax breaks versus the individual tax rates? Does it hurt what you can contribute to a Roth? Any major disadvantages?

 

[1reason]

My accountant (first time I've used one) said an S-Corp was a waste of money and wouldn't save me much except for self employment taxation. I'm figuring I'll be owing around 9-11k this year in taxes. I'm hoping. It could be more. That's more than I would like to pay.

I have several people in my network that use S-Corps and swear by it. I went on legal zoom and in NC it's about 700-900 to get it set up with all the filing fees and paperwork necessary to stay legal. There are some other expenses that would be minor (under $100) total that would help but I think just make LZ lots of profit.

Paying yourself a small salary - like 15-20k? Helps the corp pay most of the tax on your income instead of you right? That's the benefit is the corporate tax breaks versus the individual tax rates? Does it hurt what you can contribute to a Roth? Any major disadvantages?

This isn't tax advice, only general business advice, but I've been told that as a general rule, you should still report about 50% or more of your income as earned income subject to FICA.

Obviously each case will vary and if your income is high enough that you're well beyond the upper limit of FICA, that benefit diminishes. In WI, it took my wife (who knows nothing about business) about 30-45 minutes to setup a S corp and get her FEIN online (with some guidance from me in the same office).

State filing fees were about $100ish.

 

[yorkriver1]

Re corporation vs sole prop: amount of personal income declared with FICA paid. My accountant pal says that lower income reported to Social Security means lower Social Security benefits at retirement. So, unless you are making up for that by chunking away very adequate private retirement savings, it's something to consider. I am not entertaining the "social security won't be there" line of thinking. Assume it will or won't be, but awake to the consequences of decisions.

 

[Longtimeagent]

Re corporation vs sole prop: amount of personal income declared with FICA paid. My accountant pal says that lower income reported to Social Security means lower Social Security benefits at retirement. So, unless you are making up for that by chunking away very adequate private retirement savings, it's something to consider. I am not entertaining the "social security won't be there" line of thinking. Assume it will or won't be, but awake to the consequences of decisions.

That's my concern, I don't want to hurt myself more later. That's why I want to contribute to my ROTH, not get limited too much on social security. I'm 35 and already have 1700/mth in current SS benefits if I never worked again. I'll be alright, however, if I can save 10-15% off a 20k tax bill and it doesn't hurt down the road I'll do it. I've been hesitant from the "smart people" I've talked to. ?

 

[sman]

That's my concern, I don't want to hurt myself more later. That's why I want to contribute to my ROTH, not get limited too much on social security. I'm 35 and already have 1700/mth in current SS benefits if I never worked again. I'll be alright, however, if I can save 10-15% off a 20k tax bill and it doesn't hurt down the road I'll do it. I've been hesitant from the "smart people" I've talked to. ?

If you're still able to contribute to a Roth then it may not save you a whole lot currently. Let's use $100,000 income as an example. With that income you could pay yourself around $50k in salary and $50k in distributions. No FICA on the distributions. That's 15.3% (6.2% SS and 1.45% Medicare times two on both). That's $7,650 in taxes you won't pay. There are additional expenses for having the S Corp so you wouldn't save the whole $7,650.

The downside as far as savings go is when you get to the point of having a salary that exceeds the social security limit. For example, if you have a salary of $125k and distributions of $125k, you have no savings on FICA taxes. At that point you have expenses for the S Corp that you don't have as a sole proprietor.

However, since commissions are being paid to the S Corp, I can get my wife licensed and if something happens to me she can still receive my renewals. That's a big advantage. At least I think it is.

 

[WCMason]

If you're still able to contribute to a Roth then it may not save you a whole lot currently. Let's use $100,000 income as an example. With that income you could pay yourself around $50k in salary and $50k in distributions. No FICA on the distributions. That's 15.3% (6.2% SS and 1.45% Medicare times two on both). That's $7,650 in taxes you won't pay. There are additional expenses for having the S Corp so you wouldn't save the whole $7,650. The downside as far as savings go is when you get to the point of having a salary that exceeds the social security limit. For example, if you have a salary of $125k and distributions of $125k, you have no savings on FICA taxes. At that point you have expenses for the S Corp that you don't have as a sole proprietor. However, since commissions are being paid to the S Corp, I can get my wife licensed and if something happens to me she can still receive my renewals. That's a big advantage. At least I think it is.

Your last point is why I incorporated and my wife got licensed. The FICA savings are a bonus, and a small one at that as I set my salary above average to keep in the IRS's good graces.

 

[sman]

Your last point is why I incorporated and my wife got licensed. The FICA savings are a bonus, and a small one at that as I set my salary above average to keep in the IRS's good graces.

I try and keep my salary to distribution ratio at 50%. My CPA hasn't balked at it yet. He told me a few weeks ago he has a client that has a ratio of about 25% salary / 75% distribution. I'm not willing to tempt the IRS like that.