Should I Incorporate or LLC?

I would talk to a lawyer but I definitely think you should incorporate especially as a trucker, one vehicle accident everything you own or ever will own could be gone.

 

The answer to a question that should determine whether or not to incorporate is, "How much do I stand to lose if I am sued?"

If you have property holdings, where your equity in it or them is substantial, and other personal assets, such as personal savings, then you may want to consider incorporation. If your family income is at or is more than $100,000 a year, you then reach a point where you may realize the tax breaks that can come with incorporation.

As a sole proprietor, all of your assets are usually wide open to becoming a means in which to settle a judgment. If you set up a one party LLC, which may or may not be allowed in the state you live in, and if your state has "Homestead Laws" on the books, your personal home will be about all that can be absolutely protected with any certainty, even if you do incorporate.

When you set up a corporation, you must follow some VERY strict guidelines on how every dollar and cent is accounted for. For instance, you're not going to be allowed to write a check out of the corporate funds for personal needs. The business assets will have to be absolutely separated from your personal assets at all times. Receipts for small expenses that are normally exempted for sole proprietors will now be absolutely essential to have on hand to satisfy the IRS requirements for recordkeeping of corporations.

The compensation you receive or take from the corporation will have to be set up in the same way that it would be for any employee, subject to all withholding taxes and recordkeeping requirements, and this will involve filing tax returns on both your personal income, and a tax return for the corporation, and for that reason, unless you reach that magical $100,000 income level, you may actually wind up paying more in taxes as a result of incorporating your business.

Another point and time to consider incorporating a business, is when you take on employees, whose actions may expose you to the possibility of becoming a litigation target. It offers a buffer of sorts between yourself and your assets, and the party who is going after you. Again, nothing is ironclad, but it does make sense to do this when others become involved with your business in any manner.

A lesser complicated method of acheiving the same goal would be to place your personal assets in the name of your spouse, if you are married, which will shield them from your business interests, that is, unless she is actively involved in the operation of your trucking business. The fact that you file a joint tax return does not mean that she is involved with the business. Just don't make the mistake of putting the truck in her name as well.

You don't have to necessarily incorporate the business to achieve a buffer of protection. Simply come up with a business name, obtain a Taxpayer Identification Number from the IRS in that name, and have your settlements paid from the carrier you lease to, in that business name and to that TIN. You have use of all your income under that strategy, and may move it around as you wish. You can pay yourself all the profit in the form of wages, leaving the business essentially broke on paper, and you have accomplished the same thing. I still recommend that you keep personal assets in your spouse's name, except for all assets used to operate the business, if it is practical to do so.

This will still require you to file two separate tax returns, one for the business under the Taxpayer Identification Number, and that for your personal income, but it separates the business clearly from your personal assets in a recognizeable legal manner. You will also have to file with the IRS, W-2 forms that show that wages were paid to you by the business, in order to justify the fact that you were paid the profit, and you will need to pay withholding taxes each week for both Federal and any state income tax you are subject to, a simple procedure that can usually be set up through your local banking institution, but the weekly tax payments must be adhered to strictly each and every week, to avoid penalties with the IRS and your state, when filing time rolls around.

 

The short answer is yes you should form a corporation. If you don’t all your personal assets could be taken in a lawsuit. I wouldn’t open any type of business without a corporation. If you have a corporation the corporation get sued and only the assets of the corp can be taken.

Do a little research on the net about the types of corps before you call a lawyer and get an idea of what each type will do for you legally and tax wise. There are 3 main types Sub Chapter C, Sub Chapter S, and Limited Liability Corporations LLC.

You would be looking at either a LLC or S Corp. With both any profit passes through to you personal tax return and is taxed at whatever your personal tax rate is. I am not sure what Turbo was say about the 100,000 income level. One of the big differences between LLC and S Corp is the S Corp allows you to have corporate dividends. In the LLC all the earnings of the corporation are payed as income and are taxed as income to include social security and MEDICARE tax. With the S Corp you take a fair salary the remainder can be paid as a dividend avoiding those taxes.

Bottom line, do a little research and get professional help. And Turbo was dead on with his caution about keeping the corporation and personal entities separate. If you don’t and you get sued they can go after your personal assets. A lawyer would give you information on this too.

 

Although I've never actually crunched the numbers to test the worth of this statement, I was advised a few years back that, with an AGI of under $100,000 per year, incorporating a business could actually place one into the unfortunate circumstance of paying more in taxes, than they would as a sole proprietor.

I apologize if this is not correct. It is something that has stuck in my head for a number of years, and of course, tax changes could have made it completely incorrect.

 

Turbo
I have never heard that perhaps it has something to do with your state business tax. For federal tax with the S corp and the LLC the taxes are passed through to your personal tax return so your tax rate would be whatever you personnel income rate is. With the S corp you can pay your self a "fair" salary and pay corporate dividend to move the any additional earnings above your salary to you personal account. The effect of this is that you don't have to pay the self employment tax (Social Sec, Medicare, and the employer match). I have read that with the C corp you payless tax on the first 50K of earnings but with a C corp when you move it to your personnel account you are taxed again.

Which ever one you choose the liability is a must have in any business.

I would be curious what the changes in the backruptcy laws would do to a civil judgement. Could you file bankruptcy to get out from under it? I don't know how hard it would be now

 

You may well be right. It was a generalized statement offered at the time, thrown out to me from my Attorney, and who knows? He may not have known what he was talking about, but he advised me against an LLC at the time, and instead went with an "S Corp".

Sorry for any misleading information that may have been offered.

 

I'm a real secure guy....

Hey if a pool boy, something we don't have a lot of down here in the sticks, can wiggle my wife away from me...more power to him...

Now you've got me wondering....because my wife is bugging the heck outta me for a pool....(I want one too, so it's on the list...)

But seriously, I've had most of what we own in her name for quite sometime. I'm not as concerned about it as I once was, because I am no longer operating as an Owner/Operator, and the businesses we are involved in, are low risk for suits over and above the amount of insurance I carry on them.

Interestingly enough, this touches on another subject that I ran into about three years ago. I leased on to a company in the midwest, who had this unusual requirement in their lease contract that spouses would be required to sign the lease, if the lessor was married. When I questioned this, the deal was almost ended right then and there, because I made it abundantly clear that my wife was in no way involved with my trucking ventures, and this was the core reason why I keep EVERYTHING in my name ONLY, when it comes to trucking. Not one penny winds up in joint bank accounts, nor does she access those funds for any reason. I have been meticulous in separating our incomes for years.

Anyway, when I made it clear that no signature would be forthcoming from her on the lease contract, they backed off completely. I'd urge anyone who does stand a high risk of litigation, such as would be the case if a serious accident were to occur as an O/O, and that ever encounters such a requirement to absolutely refuse to comply with that request. It's not a customary lease requirement, but you sure open the door to the company and the wolves at bay to come after everything that you BOTH have, if you allow them a signature that recognizes the venture as a joint venture.