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LLC or INC?

Old 05-17-2018, 05:27 AM
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Default LLC or INC?

I have a few small business that have started to take off a bit over the last few months. Instead on constantly filling out 1099's I think it's time to start a company. What are the pro's and con's to both. One is a photography company and the other is yacht management, I am the only employee. Ideally I would start one company and run it all as one. My photos are 99% marine related. I know the LLC is easy and I can start it over breakfast but is going INC better?
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Old 05-17-2018, 05:45 AM
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An LLC and an S-Corp are pass through entities. Meaning even if you do not draw a dollar on the earnings you will pay taxes on them as if you drew 100% of the profits. A C Corp you will be taxed on the net profits as well but with the new Trump taxes it will be at 21% for federal taxes. A C Corp you will be taxed at the 21% federal tax level then the dividend distributions will be taxed as well if/when they are made on your personal taxes.

I'd recommend going to your tax accountant or attorney as there are a shit ton of scenarios and questions that need to be answered to give you what works best for your situation and where you see yourself in 1, 5 and 10 years with these companies. LLC is much cheaper to set up and establish but the 21% federal taxes on a corporation might save you those initial set up costs at tax time. Whatever you do you need to ensure you are keeping the LLC/INC and your personal bank accounts, CC's, etc 100% separate. When you start making transactions that mix your personal funds with your business and vice versa you are subjecting yourself to liability issues that even if set up properly an LLC/INC cannot protect you personally.
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Last edited by arbogb06; 05-17-2018 at 05:52 AM.
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Old 05-17-2018, 06:05 AM
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Originally Posted by arbogb06 View Post
An LLC and an S-Corp are pass through entities. Meaning even if you do not draw a dollar on the earnings you will pay taxes on them as if you drew 100% of the profits. A C Corp you will be taxed on the net profits as well but with the new Trump taxes it will be at 21% for federal taxes. A C Corp you will be taxed at the 21% federal tax level then the dividend distributions will be taxed as well if/when they are made on your personal taxes.

I'd recommend going to your tax accountant or attorney as there are a shit ton of scenarios and questions that need to be answered to give you what works best for your situation and where you see yourself in 1, 5 and 10 years with these companies. LLC is much cheaper to set up and establish but the 21% federal taxes on a corporation might save you those initial set up costs at tax time. Whatever you do you need to ensure you are keeping the LLC/INC and your personal bank accounts, CC's, etc 100% separate. When you start making transactions that mix your personal funds with your business and vice versa you are subjecting yourself to liability issues that even if set up properly an LLC/INC cannot protect you personally.
My wife is my accountant. While I value her opinion I always like to have multiple outlooks. This small business is putting gas in the boat not food on the table. I am 100% invested in my 9-5 but I am getting called to take photos and move boats at least 3-5 times per month. It's all pocket change and will most likely stay that way through the next 5 years. I'd love to do it full time but it's going to be awhile before I can match my current salary. This month has been fairly busy and I'm barely at 40% of my normal take home, not including benefits.
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Old 05-17-2018, 07:36 AM
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I don't see how you will not have to issue 1099s if your contractors don't change. Becoming an LLC or Inc. doesn't change that.
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Old 05-17-2018, 07:50 AM
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Originally Posted by Trollin4Tuna View Post
I don't see how you will not have to issue 1099s if your contractors don't change. Becoming an LLC or Inc. doesn't change that.
I get the 1099's. I want to separate the small business income from my personal income so I can properly take my deductions as needed. Most of the time I am traveling and having to purchase fairly expensive camera gear. I don't want to get slapped with a big tax bill at the end of the year, I usually get a decent refund.
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Old 05-17-2018, 08:21 AM
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To make it simple I would start an s Corp. Run both ventures through there. Down side is you would have to write yourself a paycheck and take out payroll taxes and report them and all that.
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Old 05-17-2018, 08:40 AM
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Whether you go with an LLC or a Corporation, file from 2553 in order to be classified as an S Corporation in order to run personal/ business expenses through the company. You do not have to designate any salary amount through-out the year. You take money as needed and as much or as little as you need, and every quarter you file 0. On the fourth quarter of the year depending on how much your company has made in profits, you can designate how much was payroll and distributions with your CPA's advise. On your salary you will pay SS, Fica, medicare & Suta on distribution you only pay income taxes.
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Old 05-17-2018, 08:46 AM
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An LLC where no election is made to be taxed as an association taxed as a corporation will still require 1099's to be issued to the service provider (you). A multi member LLc cold be taxed as a partnership in which case 1099's would be issued to you.

I'm not sure what you are trying to accomplish. Almost sounds like you are trying to get away from having to report earnings by not having 1099's issued under the corporate exception.

The new tax legislation has made the analysis a bit more complicated (the income deduction and wage/capital limitations). C corporations are more attractive than in the past with the 21% rate. Also consider that the income can be paid out to you via W-2 to alleviate double tax (and you are required to be paid a market based salary technically). Depending on your TI, the tax on the dividend to you is exempt for payroll tax and will have a rate of 0% up to 20%, but I suspect you would be in the 15% bracket. Considering 15% is after the 21% tax paid to the govt, you are really paying an effective rate on the distribution of roughly 12% (79% remaining earnings X 15% rate). There are also modest deductible benefit differences available to some entities and not others (I believe reimbursement for certain education expenses, may also be some daycare benefits if I recall correctly).

LLC's can be converted at a later time. There is an added cost of being a C or S corp (accounting and tax filing fees, state registration fees and annual report fee, minimum state tax depending on the state, etc..). An SMLLc may have some of these costs as well but not typically a filer (disregarded).
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Last edited by BACKTOTHESEA; 05-17-2018 at 08:54 AM.
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Old 05-17-2018, 08:48 AM
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Seems the 1099 reporting has been cut way back. Only certain businesses require 1099's. We're a LLC. Single member LLC.s have less protecction it seems. Florida has recently rewritten its LLC laws. 1099 is federal, LLC is state.
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Old 05-17-2018, 09:16 AM
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Originally Posted by BACKTOTHESEA View Post
An LLC where no election is made to be taxed as an association taxed as a corporation will still require 1099's to be issued to the service provider (you). A multi member LLc cold be taxed as a partnership in which case 1099's would be issued to you.

I'm not sure what you are trying to accomplish. Almost sounds like you are trying to get away from having to report earnings by not having 1099's issued under the corporate exception.

The new tax legislation has made the analysis a bit more complicated (the income deduction and wage/capital limitations). C corporations are more attractive than in the past with the 21% rate. Also consider that the income can be paid out to you via W-2 to alleviate double tax (and you are required to be paid a market based salary technically). Depending on your TI, the tax on the dividend to you is exempt for payroll tax and will have a rate of 0% up to 20%, but I suspect you would be in the 15% bracket. Considering 15% is after the 21% tax paid to the govt, you are really paying an effective rate on the distribution of roughly 12% (79% remaining earnings X 15% rate). There are also modest deductible benefit differences available to some entities and not others (I believe reimbursement for certain education expenses, may also be some daycare benefits if I recall correctly).

LLC's can be converted at a later time. There is an added cost of being a C or S corp (accounting and tax filing fees, state registration fees and annual report fee, minimum state tax depending on the state, etc..). An SMLLc may have some of these costs as well but not typically a filer (disregarded).
The only thing I am trying to accomplish is to be legal. In months past I'd take some pics or help move a boat and I'd get a few bucks in cash, here and there. Now I have recently done a few projects for bigger companies which require a 1099 from me as the payment amounts are over $600. Last year this happened 3-4 times. This year I'm up to about 10 times and it's only May. I decided I need to get this company officially started. I am also about to make a significant investment in new camera equipment which I would like to do via the company so I can write it off as much as possible. My wife is going to be a great resource but we have a 1 week old and shes a bit tired. I'd like to have an educated discussion with her about this without having to ask her questions for an hour.

At the end of the day I just want to be legal, and have the best tax benefit. I want to keep this income separate from my 9-5 job and use money earned to grow the business and not line my pockets, for now. If I keep going at the current pace I could possibly need an employee or 2 in 2-5 years but right now jobs are coming when I seek them out, my phone isn't ringing off the hook but I am also 100% word of mouth.

Keep the info coming, thanks all!
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Old 05-17-2018, 01:41 PM
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Originally Posted by Leeroyjenkins View Post
The only thing I am trying to accomplish is to be legal. In months past I'd take some pics or help move a boat and I'd get a few bucks in cash, here and there. Now I have recently done a few projects for bigger companies which require a 1099 from me as the payment amounts are over $600. Last year this happened 3-4 times. This year I'm up to about 10 times and it's only May. I decided I need to get this company officially started. I am also about to make a significant investment in new camera equipment which I would like to do via the company so I can write it off as much as possible. My wife is going to be a great resource but we have a 1 week old and shes a bit tired. I'd like to have an educated discussion with her about this without having to ask her questions for an hour.

At the end of the day I just want to be legal, and have the best tax benefit. I want to keep this income separate from my 9-5 job and use money earned to grow the business and not line my pockets, for now. If I keep going at the current pace I could possibly need an employee or 2 in 2-5 years but right now jobs are coming when I seek them out, my phone isn't ringing off the hook but I am also 100% word of mouth.

Keep the info coming, thanks all!
Really no need for you to do anything. You are a simple sole proprietor. If you’re serious about being legal, check local regs concerning business license and local taxes.
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Old 05-17-2018, 02:00 PM
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The main reason to be an LLC, which is the simpler of the two options, is to shield your personal assets from liability claims. Get an EIN for it (simple online process) and have the 1099's issued to the LLC and it's EIN. If you aren't concerned about liability, get the EIN and be a sole proprietorship which is way simple. I didn't convert to an LLC until I started to have to pay other people via 1099's.
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Old 05-17-2018, 08:41 PM
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Any profit in the inc is taxed and then if you pay it out as dividends it's taxed again. With the LLC profits are taxed once at your personal rate. In either case any business expenses are deducted from profits before calculating tax due.

if you're getting a refund you're having too much deducted at your real job.
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Old 05-18-2018, 02:22 AM
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Originally Posted by Leeroyjenkins View Post
I have a few small business that have started to take off a bit over the last few months. Instead on constantly filling out 1099's I think it's time to start a company. What are the pro's and con's to both. One is a photography company and the other is yacht management, I am the only employee. Ideally I would start one company and run it all as one. My photos are 99% marine related. I know the LLC is easy and I can start it over breakfast but is going INC better?
Some good advice here, but your post is somewhat confusing. It seems to be more of along the lines of ease of record keeping than a legal issue at this point.

It seems you fall more into a "personal service" category type business, meaning your main product is a service you provide and you don't have any employees that you pay. Most your expenditures are probably related to equipment purchases and travel expenses, and a small amount for supplies.

I would start by opening up a separate bank account and get a credit card associated with it. This account and card should only be used for depositing all receipts you receive for payment and paying all expenses related to getting those receipts.

IMO, If customers are fine with writing checks made out to your name and suppliers are fine with selling to an individual, there is no need to legally form some entity. You can open the bank account in your name and use your SS#. If customers or suppliers have a problem with dealing with general public/individuals - ie - some of my suppliers can only sell to "professionals/companies", then you can address the issue and need of forming a legal entity. (This opinion does not take into account any liabilities that may be associated with doing what you are doing - injury, property damage, licensing requirements, insurance etc)

As far as receiving 1099's - regardless of whether you are acting as an individual, llc, c corp, s corp - people paying you (more than $600/yr?) with anything other than cash are going to/or should be getting your SS/tax ID number and sending you a 1099 at the end of the year.

By having that separate bank account, the amounts on the 1099's will not be a surprise at the end of the year; and assuming you are a cash basis tax payer, your account balance minus your cc balance will approximate your income throughout the year. All your "business activity" will be consolidated in one place -ie bank activity to that account - which will make your wife's life easier, rather than having to scour through everything to find the information when tax time rolls around.

Some other tidbits-

Also if activity picks up significantly, you may need to start filing quarterly estimated taxes.

Is what you are doing subject to state sales tax?

It's an ego boost to say "I have my own company" myself included (kind of). Just realize what you are really doing is jumping up and down in front of local, state, and federal govt's and screaming "look at me! look at me! I'm somebody else you can tax and regulate" "I'm the 2 for 1 over here!"

It's relatively quick, cheap, and easy to form some "entity" - something's missing from the triangle. Ever try to legally dissolve one?

Last edited by chrisjb; 05-18-2018 at 05:57 AM.
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Old 05-18-2018, 02:34 AM
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Originally Posted by Leeroyjenkins View Post
The only thing I am trying to accomplish is to be legal. In months past I'd take some pics or help move a boat and I'd get a few bucks in cash, here and there. Now I have recently done a few projects for bigger companies which require a 1099 from me as the payment amounts are over $600. Last year this happened 3-4 times. This year I'm up to about 10 times and it's only May. I decided I need to get this company officially started. I am also about to make a significant investment in new camera equipment which I would like to do via the company so I can write it off as much as possible. My wife is going to be a great resource but we have a 1 week old and shes a bit tired. I'd like to have an educated discussion with her about this without having to ask her questions for an hour.

At the end of the day I just want to be legal, and have the best tax benefit. I want to keep this income separate from my 9-5 job and use money earned to grow the business and not line my pockets, for now. If I keep going at the current pace I could possibly need an employee or 2 in 2-5 years but right now jobs are coming when I seek them out, my phone isn't ringing off the hook but I am also 100% word of mouth.

Keep the info coming, thanks all!
You appear to be confused.

"which require a 1099 from me"

Not unless you are paying someone over $600 to provide services to your company. Those that you provide these services TO have to issue you a 1099 each year.

You mean a W-9. When a business pays an independent contractor $600 or more over the course of a tax year, it is required to report these payments to the IRS on an information return called form 1099-MISC. Businesses use the name, address and Social Security or tax identification number from form W-9 to complete form 1099-MISC.

Becoming an LLC doesn't eliminate a W-9.
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Old 05-18-2018, 03:59 AM
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Chris I would suggest forming an LLC and elect to be taxed as an S corp, like stated above not a lot of advantages but it may offer some protection especially if you are moving boats and something were to happen. Currently they could go after you personally, if you do it under an LLC you may be protected. I would recommend spending a few dollars on drawing up a contract to limit your liability. The photography I don't see a need to do anything different that just keep records of your expenses and receipts.

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Old 05-18-2018, 04:21 AM
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I thought the new tax law allowed me to take 20% off the pass through even on an S corp? Am I reading correctly yall are saying C corp only?
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Old 05-18-2018, 04:28 AM
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There are a few issues that are very important that need to be considered.
Self employment tax, losses and basis, differences of tax consequences in the event of liquidation to name a few .
Im writing on a pad and dont have the patience to do much more. Butill be back in the office on monday and would be happy to expound if your still interested .
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Old 05-18-2018, 04:56 AM
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The bigger issue for you right now is legal compliance and exposure (which has been mentioned more than once). Not much there for taking photos but could be exposures if your moving boats around. Some advice on this thread, while well intentioned, is incorrect. You should at least sit with an attorney and your insurance broker if you have one. Pretty short money for an initial consult.



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Old 05-18-2018, 05:33 AM
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Originally Posted by jcbcpa View Post
There are a few issues that are very important that need to be considered.
Self employment tax, losses and basis, differences of tax consequences in the event of liquidation to name a few .
Im writing on a pad and dont have the patience to do much more. Butill be back in the office on monday and would be happy to expound if your still interested .
I think you are right, but I think the op needs to be a little more specific as to what is actually going on rather than looking for some way to find some magical tax treatment.

Not to sound disrespectful, harsh or discouraging to op, but what it sounds like to me is he has a full time day job and does photography on the side nights and weekends for which the majority of the customers pay him under $600 per shoot. Yacht management could be anything boat related, from simple compounding up to a full refit, water delivers, land delivers, etc????-who knows at this point. Sounds like he couldn't make a living at doing just the side job; needs the 9-5 and has a new born, so he is probably isn't looking to give up his day time job any time soon.

As far as the nature of the post - wanting to be legal (whatever that means) but confused/against "filling out/getting 1099's" - someone paying you requesting you give them a w-9, i-9,w-4 or whatever so they can comply with record keeping isn't going to change due to op's legal structure. Many entities require that for all vendors to cover themselves regardless of whatever exceptions exist. I believe the $600 is just the "you must" level - not a "you can't"; so most people don't, but some may. If the goal is to be "legal", giving and getting those forms is basically what is required to be legal.....and it shouldn't be a big issue since the revenue earned is being properly declared regardless of whether a 1099 is issued.

Now, if the op is just looking to buy a new truck and wants to somehow "write it off through the business" ....

Last edited by chrisjb; 05-18-2018 at 05:39 AM.
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