Sole Proprietor vs. S Corporation?

[dk34 14]

Is anyone incorporated as an S Corporation? I wanted to know what advantages that you receive in comparison to being a sole proprietor.

I am considering incorporation because I have annual pension contributions($8500)and health insurance premiums($6500) that are not deductible as a sole proprietor. In addition, I would like to eliminate the self employment tax. What dis-advantages do you see in being incorporated?

Thanks in advance.

[charlie 14]

Talk to your Acct.

Charlie

Where are you from?

[dk34 14]

Lancaster, PA.

I spoke to my accountant, attorney and payroll service company. I've heard from their side the technical aspects, I was looking for some "practical" input.

[charlie 14]

Your acct. is best resource. Nobody nos about your business better then you and you acct. I kno it can be a bit confusing. Have you acct. do your end of year as if you were in both categories and you can see the difference for yourself.

Charlie

[Grant 500]

One advantage of being incorporated includes isolating your personal belongings (ie. house, car, savings account etc) from your business. Legally a "corporation" is treated by the state and feds as if it were a person. You therefore then are an employee of that "person" and your personal property is not touchable in the event of being on the wrong end of a lawsuit.

[Paul B. 523]

Grant,

An LLC or LTD will accomplish the same thing (at either partnership or sole proprietor status), without the costs and extra amount of paperwork that go with a chapter "S".

[Celeste 341]

You get doubly taxed as a corporation - LLC is a great way to go but talk to a good atty and acct to make sure.

[Guest Jim CSC]

S Corps do not pay double taxes. C Corps do.

As an S Corp, all profits after expenses go to the share holders.

In a prior life, I used to be an S Corp. While I am a sole propritor right know, I am switching to an LLC next January.

Jim

Concrete Surface Cleaning:D

[ron p 500]

sole-you can get personaly sued

corp-only the corp can get sued

if you go out of buissness and are incorp. you need a lawyer and a judge to disband it.

[Mike Williamson 198]

For those of you who are in Florida, who are not incorporated, and who have a Worker's Comp exemption, you'll have to do one of two things by January 1st...either incorporate or obtain Worker's Comp insurance. I'm incorporating.

[Rick G 14]

Who can afford WC in FL? I called and they will only do a min of three people and it was $8500.00 for the year. I have found the being exempt is ok for most commercial clients but I have had a couple of potential clients say that they will not take exemption and for a fee, deducted out of my check they will temporally add me to there policy for that job. Mike or anyone else have you experienced this?

Mike thanks for the heads up on the inc. Rick G

[Lenny Schrec 14]

I incorporated in 2001. I sent my papers in and had a small mistake and had to correct it. I did not become incorpoiated untill April of 2001. I was not able to file my taxes as a scorp for that year because you have something like 75 days after the the first of the year to file for that year. Give yourself enough time.

Lenny

[Dave Olson 23]

Originally posted by Paul B.

An LLC or LTD will accomplish the same thing (at either partnership or sole proprietor status), without the costs and extra amount of paperwork that go with a chapter "S".

Paul B,

What extra paperwork and expense? I have always been an S Corp and don't really know anything different!

Dave Olson

[SCOFFMAN 14]

I just want to add that business entity selection in a serious decision that needs to addressed with the proper professionals (accountant and probably a tax attorney). I'm a CPA also but am no expert concerning all tax matters and this should not be considered professional advice on my part. The benefits of an entity also vary from state to state. Just be sure to learn what you can about each type of entity and discuss the pros/cons with your professional resources.

Also, the double taxation issue for Corps only applies to monies paid as dividends/gains/distributions to shareholders.

Steve Coffman

ACU-TECH Pressure Cleaning, Inc.

Chapin, SC

[Beth n Rod 1,279]

Check this out:

http://form-a-corp.com/entity_comparison.php

http://www.monahancpa.net/kp2.html

http://www.bridgesdunnrankin.com/s_corp_vs.htm

Good resources. Worth reading.

Beth :groovy3:

[Paul B. 523]

I don't claim to be a tax or Corporation expert, but here is what I know about the subject. If I'm incorrect, I blame everything on my CPA.

The cost of setting up business as an LLC, Chapter S or Chapter C varies from state to state.

Fees for state filing can be different for an LLC than a Chapter S Corp. Generally an LLC filing is less costly then a Chapter S.

Same types of businesses are treated differently from city to city, state to state, even though treated the same by federal standards.

Generally there are more tax forms to fill out if you are doing business as a Chapter S vs. an LLC, therefore CPA costs will be more expensive. This added paperwork and related costs may be at state level vs. federal. The difference for me would have been both at state and federal levels.

The "correct" business entity depends on individual circumstances and on understanding the advantages of each form of business. Only "YOU" can choose the "right" fit for your business.

Here is one site that can help explain some of the differences between "LLC", "Chapter S" and "Chapter C" corporations. www.nolo.com/lawcenter/ency/index.cfm

Here is quote from "Money Matters / Joseph Anthony" that explains the second most important difference (first being liability) between a "Chapter S" and a "Sole Proprietorship":

Shareholders and employees of an S corporation do not pay Medicare or Social Security taxes on profits or dividends from the corporation. For example, a shareholder/employee receiving $55,000 in salary and another $20,000 as his or her share of profits would pay only an income tax on the $20,000. (Of course, the employee and employer are subject to employment taxes on the full $55,000 of salary.)

"S Corporation" profits and losses pass through to owners, so the S corp itself doesn't pay federal income taxes. However, the corporation still has to file a tax return (Form 1120S) showing profits and losses. As a shareholder, you then report the pass-through of income and loss on your personal tax return.

The corporation also will probably have to pay some sort of minimum annual state franchise fee or tax, and may have to file a state corporate income tax return as well.

[Scott Stone 604]

Originally posted by ron p

sole-you can get personaly sued

corp-only the corp can get sued

if you go out of buissness and are incorp. you need a lawyer and a judge to disband it.

This is BS. As my attorney says, "any contract is only as good as the opposing attorney is bad." Think of how many times a corporation is sued, and I can guarantee you that a good attorney will also go after the officers of any corporation.

What I do:

I am incorporated as an S corp. It saves me around $6000 a year in taxes over a sole proprietorship. There might be some extra paperwork involved, but my accountant takes care of all of that at the end of the year, and tax time, and it is really done automatically via computer.

As for personal liability, I carry, on the advice of my attorney, an umbrella policy for the times I might get sued for some reason. It is easily paid by the $6000 in tax savings.

OF course, most opinions will be different.

Scott Stone

Ain't I handsome???

[Paul B. 523]

Scott,

You are absolutely correct. Anyone and everyone can be sued.

"Limited Personal Liability" is provided to separate Corporate and Individual actions:

Corporate structures, including S corps, allow you as an owner to limit some of your personal liability. For example, creditors of an "S" corporation generally can go after only the assets of the corporation, not the owners, if debts are unpaid.

Lawyers will tell you that the legal protections of corporations are not ironclad. For example, owners of small "S" corporation have to be careful to keep their own financial affairs and those of the corporation strictly separate if they want to maintain limited liability.

The corporate structure also does not protect you against liability for your own actions, if you purposefully misrepresent your company, fail to protect your employees or willfully ignore the laws, etc. etc.. Some examples are: Cases of Sexual Harassment, willful neglect of OSHA or other safety standards, or other unlawful activities.

As always, your best bet is to consult privately with an attorney about legal questions.

[Henry B. 4]

I'm not a tax accountant but I have hired an excellent one and he and my wife who is an accountant both told me being an S corp was the best thing for my kind of company.

I know neither one of them would give me bad information so that's what I filed as. I will offer you all one HUGE bit of advice.

Make sure the IRS recieves and approves your filing of an S corp. Apparently they never settled mine and even after filing as an S corp for 5 years they tried to charge me over 100,000 dollars in back taxes and penalties. Yeh, that was $100,000 dollars no misprint. <G>

I hired a tax lawyer for $5,000 and over 6 months he fixed the problem. Since then, I've changed my views on lawyers a bit.

Henry