__._,_.___----- Original Message -----From: Debbie BreedloveSent: 10/24/2008 1:32 PMSubject: Re: [taxchat] Re: LLC or S or C-Corp
"We file a Sch E for the $200K of equipment / vehicles to capture the depreciation expense."I thought that revenue from rental of personal property (equipment) goes to Sch C, not E, and is subject to SE tax. Is that not true?Anyway, here in the Land of Oz, it costs $165 to set up an LLC with the SOS, and a one-page annual report is filed, along with a $55 annual fee. It's pretty simple and not very expensive. I just explain that I'm not an attorney, but I can tell them the tax ramifications of each type of entity. I think that if they are concerned about liability, and don't want to deal with the requirements involved in maintaining an S-Corp, such as minutes, payroll, and a separate tax return, the LLC is fine.A problem that we constantly face in this area is that there are all these radio and TV ads telling them that they should incorporate, and if they don't incorporate they are paying way too much in taxes. I have to explain to them the rules on reasonable salary, and that they can't get away without paying any SE tax. In the case of a one-owner business with no employees, and all the revenue is a result of that owner's work, they're going to have a tough time convincing the IRS that the revenue isn't earned income. And even if they pay themselves a reasonable salary and save a little SE tax on part of the income, the cost of doing the payroll and the corporate tax return will probably be as much as they saved in SE tax, if not more. But, since they've heard these commercials, and their ex-brother-in-law's father has a neighbor whose barber's son said so, they're convinced that we're not telling them the truth. You know that book "101 Tax Saving Tips That Your Accountant Doesn't Want You to Know" or something like that...as if we wouldn't want to save them money in taxes for some reason. It also depends a lot on the client, what type of business it is, whether or not they'll have employees, how organized they are, etc. Some people can't handle the extra paperwork, but don't want to pay someone to take care of it for them. Those are also the ones that are less likely to make enough money for it to be worthwhile to incorporate. JMHO.From: Arnold M. SocolSent: Friday, October 24, 2008 10:43 AMSubject: Re: [taxchat] Re: LLC or S or C-Corp
I always advise being concerned with the "Liability" first and not the cost, and not the taxes. Obviously the sole proprietor is the easiest and least expensive to setup and maintain, but not good advise for most situations especially where the owner has personal assets that could be needlessly lost in a business law suit. Even when a sole proprietor is ready to accept "limited liability" is the way to go, I keep the assets in the personal name and charge the corp or LLC rent for these assets. Such as a part time landscaper, excavator with nearly $200,000 of equipment/vehicles and less than $50,000 of annual revenues, because he has a full time job with the town. We file a Sch E for the $200k of equipment / vehicles to capture the depreciation expense. We set up an S-Corp that owns nothing and can't lose what it doesn't have and of course there is insurance.A sole proprietorship I advise is only a temporary stop until the new business can afford and knows it will stay in business for some time to come. I never advise SPs, only as a temporary situations. I explain all of this to the client.Arnie----- Original Message -----From: mjsanders2Sent: 10/24/2008 11:22 AMSubject: [taxchat] Re: LLC or S or C-CorpDear Arnie,
In Oklahoma we don't have the same requirement as NYS. I advise new
small businesses to either stay a sole proprietor (based on size) or
go to an LLC with S-Corp election. I was told in a meeting that S-
Corps have to do all the annual meetings, corporate meeting minutes,
etc that C-Corps do. But an LLC does not have that requirement.
Therefore an LLC with S-Corp election gets the preferential tax
treatment without all the required meetings and minutes recording.
The small businesses I have encountered want to operate decision
making wise like a sole proprietor - "I decide". They aren't
interested in having a corporate board of directors or annual
meetings. If they are just an S-Corp, it leaves them open for the IRS
to disallow their S-Corp status on the basis of not having the
corporate board of directors, meetings, etc.
Janet
--- In taxchat@yahoogroups.com , "Arnold M. Socol" <waymeans@...>
wrote:
>
> I gave a couple of classes this past month at an adult education
school. I contributed to a 10 week program towards a complete
business plan as the accountant. As part of my material I was asked
to discuss the different "entities", sole proprietor, LLC, Corp,
PTRs, etc. I have always felt more comfortable with the Corp and S-
Corp for small businesses. One student said her research concluded
an LLC was best for her. Her reason - simplicity. I advised that
here in NYS the cost to become an LLC doubled with the cost of
running classified ads in 2 newspapers for 13 weeks. For these
startups every nickel and dime matters. After thinking about it it
is less costly if they file as a single member disregarded entity on
Sch C and not having to file an 1120 series return. The tax prep fees
would be considerably less over time. Any thoughts on how you
recommend the best entity for small startups.
>
> Arnie
>
IRS Circular 230 Disclosure: Unless expressly stated otherwise in this transmission, any tax advice contained herein, forwarded with or attached to this message was not and is not intended to be used, nor may it be relied upon or used, by any taxpayer for the purpose of (1) the avoidance of any tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any tax transaction or tax-related matters that may be addressed herein.
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