Home: Message List - What is the most inexpensive, tax-friendly, and litigation-proof, business structure?

Re: What is the most inexpensive, tax-friendly, and litigation-proof, business structure?

Manoj Gupta — Thu, 07 Feb 2008 05:19:58 GMT

In most cases for small businesses, S-Corp. is better than LLC. In case of LLC, 100% of net income is subject to self employment taxes (15.30%) while in case of S-Corp., the income subject to self employment tax is typically 30-50% of net income. I have illustrated this and the tax saving impact, on my website with the help of an example. Please see "FREE DOWNLOADS" page on my web site www.GlobalAccountingAssociates.com and download the excel file, review and give me your feedback, if any. LLC and S-Corp. both provide the same amount of personal liability protection.

Re: What is the most inexpensive, tax-friendly, and litigation-proof, business structure?

Dangelo — Wed, 06 Feb 2008 09:05:06 GMT

A Home Business... you can even include your home business in an LLC as well for extra protection.

For best advise I would speak with an attorney! Always do for serious topics like this, it save time, and perhaps stress down the road.

Best,
Nik

Re: What is the most inexpensive, tax-friendly, and litigation-proof, business structure?

GasisaRipoff — Tue, 16 Oct 2007 14:45:22 GMT

As a financial advisor, I would have to agree. S-Corps are the way to go. I just found out that LLC's are a little more difficult to insure from an agent and a client. A company that writes insurance on quite a few unique companies is http://www.phly.com/index.aspx Philadelphia Ins Co has outstanding customer service.

The main thing to do is get a Fed ID# from the IRS and file the Form 2553. March 15th is a critical deadline date. The IRS have even given some slack to S-Corps. http://www.irs.gov/newsroom/article/0,,id=174675,00.html

The IRS website is one of the best info websites in existence. Here is another informational page. The IRS has quite a few of these using the search term scorp. http://www.irs.gov/faqs/faq12-1.html You can search for other biz structures there also.

The original question has many answers. Accountants do seem to like the S-corp form. I think that you would have to assign a weight to each part of the question and make a decision from there. The main thing is to quote Guy Kawasaki, "Quit planning and go do it."

James J Moore
http://www.cutcompcosts.com/

Re: What is the most inexpensive, tax-friendly, and litigation-proof, business structure?

Perrottalaw — Tue, 16 Oct 2007 13:55:21 GMT

Well, for one this partly has to be done by an accountant, which I am not, in order to make sure the amount of dividends are proper. Secondly, this is not a do-it-yourself area, as you don't want to invite IRS scrutiny by doing it wrong.

I do have a tax background but, as an attorney, I still use accountants becuse they work day to day with the best ways to structure everything. I would call an accountant who is very familiar with S Corp taxation and they should be able to explain this to you. A good accountant should be able to save you more than they cost to use...

Re: What is the most inexpensive, tax-friendly, and litigation-proof, business structure?

score81 — Tue, 16 Oct 2007 06:49:46 GMT

I checked your web site and it does not provide any detail informtion about this subject.

Re: What is the most inexpensive, tax-friendly, and litigation-proof, business structure?

Perrottalaw — Tue, 16 Oct 2007 03:34:57 GMT

I am not a fan at all of the SP format. You have unlimited liability, and you will pay the full amount of self-employment tax. Please go see an accountant and find out the best structure for you depending upon your state. Often, an S-corp structure is best as it will provide your accountant with some flexibility. In some states, such as Georgia, and LLC taxed as an S-Corp might be better as LLCs here have less requirements. I think it is worth spending a little time with some professionals on this.

Re: What is the most inexpensive, tax-friendly, and litigation-proof, business structure?

jamis0n — Fri, 12 Oct 2007 22:45:09 GMT

if/when you decide to start looking at insurance MAKE SURE IT HAS WORLD WIDE COVERAGE... most US carriers cover only US incedents...

my .02

Re: What is the most inexpensive, tax-friendly, and litigation-proof, business structure?

SCORE70 — Fri, 12 Oct 2007 05:52:26 GMT

Bingo. It's the same
data, but reported a little differently, so there's clearly no benefit to the
added complexity of adding a layer of corporate accounting and corporate tax filings
on top of the Schedule C. The added
layer of accounting and tax filings add cost.

Where I come from, any legitimate business organization can
get insurance. So no need to incorporate
to become an "insurable entity." Sole proprietors, LLCs, and corporations can
all buy business insurance. And I never
would argue against insurance. In fact,
as I pointed out in my earlier post, legal insulation is often not as effective
as people hope it would be, so they should always be adequately insured. But in all of my experience in entity
selection, I never once had insurance be suggested as a significant
consideration in choosing the best entity form.

Laws in each state differ.
What might be the right answer in a state where the LLC law is based on
partnership law might be much different from the answer in a state where the
LLC law is derived from corporation law.

Accountants frequently favor S-Corps because there are some
circumstances under which that business structure offers some tax advantages. But this preference can be self-serving: the added accounting cost associated with
S-Corps can benefit the accountant’s income.
I don’t mean to disparage accountants, but that can be a real
consideration in some cases. That may
explain the Kaplan bias toward S-Corps. In your recommendation, you seem to
have conveniently ignored the LLC alternative.

The original question, as I understood it, was: what is the
most inexpensive, tax-friendly, and litigation-proof, business structure that
can be used for a consulting business.
Balancing those criteria, recognizing that local jurisdictional issues
might affect the recommendation, I still content that, based on the assumptions
presented, the best alternative is a sole proprietorship, followed closely by
an LLC. There seems to be little that
argues for a corporate form.

This whole thread substantiates krhtax’s earlier
comments: this is not an easy question
to answer, and that the client should consult with competent accounting and
legal advisors who are familiar with the laws and regulations of the state in
which they are operating to come up with a solution that is right for them.

H. D. Kopicko, J.D,, M.B.A., B.S.E.(M.E.)

Re: What is the most inexpensive, tax-friendly, and litigation-proof, business structure?

GasisaRipoff — Thu, 11 Oct 2007 20:04:55 GMT

It is the same expense and income data whether you file a C or 1120S. I was mainly speaking as to the audit rates. If you use an accounting program and the associated tax program (i.e. Turbotax and Quickbooks) it is a simple matter.

I have handled hundreds of files for insurance carriers that had business liability insurance cases. Not one had their operate veils if they had insurance. The book for $3.35 is used, but the new one is $29.95, written by Martin S Kaplan, CPA. It has been a best seller for years. Everything I have posted is in that book. It is worth the read.

The bottom line that is that one would have to weigh out expense vs. tax-friendly vs. litigation-proof.

James J Moore, AIC, MBA, ChFC, ARM
http://www.cutcompcosts.com

Re: What is the most inexpensive, tax-friendly, and litigation-proof, business structure?

GasisaRipoff — Thu, 11 Oct 2007 19:48:54 GMT

If you have insurance your personal assets will not be attached. After handling hundreds of corp/malpractice/D&O liability files for various insurance carriers, I would have to say not to not one was sued personally. The idea of a corp is to be an insurable entity. With all of the litigation, one would be "rolling-the-dice" not to have some type of liability coverage.

James J Moore, AIC, MBA, ChFC, ARM
http://www.cutcompcosts.com