Really Stupid Question - Should I Pay Myself a Wage?

There really isn't all that much added paperwork if you have a corporation. You will need to file an annual report and possibly a franchise and excise or property tax return with your state each year. You will pay a little more to the state in tax, but it can also be deducted from your federal taxes. It is more a matter of to whom do you pay the tax. The minimum corporate tax in my state is $136/year and the annual report costs $20/year. The financial information that you file with the state is the same as you would file with the feds on your tax return. Some states may have different filing requirements. Even with the added cost and paperwork, I think that having a corporate structure within which to work is well worth the small cost. Your CPA or tax preparer can do the financial filings for your corporation if you don't want to hassle with it.

You are supposed to have an annual stockholders meeting and that can be documented in a ring binder or composition book if you don't want to buy the formal forms. You can buy the corporate seal and book that will give you a guideline for what you need to do for probably $100-200. It does look more professional when you print out your stock certificates and have everything nice and neat in a single binder. It may sound complicated, but it is really not all that bad. You can even get your attorney to do the paperwork for the annual meetings, etc., At one time my attorney was set up as the corporate secretary for one of my corporations and he handled everything related to filing forms and keeping the corporation legal. I paid him a monthly retainer.

You can incorporate for about $100 in most states. You can also usually apply for incorporation yourself, but any corporate attorney will do it for you. It should not cost more than $300 for their services. You can do it yourself in about 20 minutes.

The important thing is that you keep corporate and personal funds separate. You will need a separate bank account for the corporation. If you mix the funds then the corporate veil can be penetrated. I won't advise anyone which way to go. I have always preferred a corporate structure. Although there are some personal protections, I like the tax benefits of a corporation over a proprietorship.

 

I completely agree with G/Man. Setting up and maintaining a corporation not that big a deal, and the tax and financial benefits can easily outweigh the costs. I have to say, though, that IMHO the primary benefit is liability and protecting your personal assets. I disagree with bbblotliz's thoughts about insurance. You have a LOT to loose. Like the rest of your life! While I agree, mishaps are what you need insurance for, my personal opinion of insurance is that it's legalized extortion, and the companies will do their best to screw you out of any settlement where they have to really pay out. You have a million dollar liability policy? One good wreck and that is gone. The other ten million will come out of your hide when the dust has settled, and if you have not protected your personal assets you can be ruined in a heartbeat, and that includes any (and, likely ALL) assets you are likely to have in the future. I'm pretty sure that an unsatisfied judgement stays on your record FOREVER. I think also that one of those can not be wiped out in bankruptcy any more. The tax and financial benefits of a corporation will likely never be challenged in practice, but have an incident where a plaintiff's attorney starts to look for assets and you'd better have made #### sure your corporate records are in order. You can loose the trucks, the permits, and be out of business for a while, but you'll be able to keep your house, your personal possessions, your bank accounts, your 401k, etc. A properly set up and maintained corporate entity will save your ### when push comes to shove!

 

If you drive your own truck, your personal assets aren't as "safe" as you think they are. If you are involved in a wreck, the "injured" party's attorney will sue the motor carrier, the truck owner, the truck driver, the owner of whatever the truck is hauling, whoever loaded the truck, and everyone and anyone else they can possibly accuse of having ANYTHING to do with the wreck.

Your corporation isn't driving the truck...YOU are. YOU can be sued personally for any mistakes you may have made while behind the wheel, so your personal assets are still at risk...especially in a "driver error" crash.

Now if you hire someone else to drive your truck, then there is ABSOLUTELY a benefit to incorporating. The corporation owns the truck, the corporation hired the driver. You are merely an employee of the company, so you cannot be sued personally....as long as you have kept business finances totally and completely separate from personal finances...but for a truck owner who drives the truck himself? Not so much. You can still be sued personally as the driver of the truck.

And yes, civil judgments against you can be discharged through bankruptcy.

 

You are exactly correct. If you are the driver, the fact that the vehicle is owned by a corporation makes little difference in a major crash. You will be sued as driver, and then the corporation sued as an entity. There is no protection offered in that case.

 

#### Lawyers... I stand corrected... sort of... A civil judgement can be discharged, but "the discharge of a judgement does not remove the judgement from property to which it might have attached before the discharge". In other words, the judgement becomes a lien on property. Forever. Sort of. see:

http://doney.net/faq_discharge.htm

and

http://doney.net/ex-az.htm

And that's just for Arizona.

So, thanks, Pedigreed Bulldog, for the correction, I hadn't given enough thought to what happens if you do the driving yourself. This thread is just beating all the fun I thought I was going to have driving a truck again...

 

Simple solution: Don't wreck.

 

Seriously, thanks for all this info. I have been thinking of driving again, becoming an O/O, but this is getting depressing. So what happens to liability if you bought a truck, lease it to a carrier, and drive it yourself? I'm guessing the carrier's attorneys have figured that one out so that you get screwed then, too? No wonder there are so many used trucks for sale, and so much freight needing to be moved.

 

Set up a leasing corporation to lease the truck to a carrier? Geez, this can get complicated!

 

There are still some protections to incorporating. My main concern is the tax benefits from incorporating. Filing suit is one thing, getting a judgment is another. By the way, bankruptcy laws will vary somewhat from state to state. Some allow much higher asset protections for personal property than others. Should you need to file bankruptcy, you could file either a chapter 11 or chapter 13, depending on whether you are filing personally or corporately, and pay off any judgment over 60 months. It could be reduced from the original amount in a bankruptcy proceeding. You may also be able to get a complete discharge for the entire amount under a chapter 7 bankruptcy, depending on state law. Another thing about judgments is that they expire in most states and must be renewed before they expire. If not then the judgment goes away. I believe that a lien also has a limit on the time that it can stay on property. Most liens can be discharged under bankruptcy unless the lien was put on to purchase the asset. For instance, if you buy furniture and finance your purchase and then go bankrupt, you could lose the furniture to the creditor unless you reaffirm the debt. If you borrow on furniture that you had already paid off then you may not have to pay on that debt and could receive a discharge and still keep your furniture. I believe that a lien on real property may be treated a little differently. Under bankruptcy, you are allowed certain exemptions for your primary residence, auto's and other personal property, such as clothing and furniture, as well as your "tools of the trade." The amount of those exemptions will vary from state to state. I think that my state will allow $5,000 equity in your personal residence. If you are married and both file then you can claim $10,000. In Texas I believe that it is $100,000 for a personal residence. I spoke with someone a couple of years ago that lives in Texas who was thinking about filing and that is what I was told. Hopefully, none here will need to file bankruptcy, but it is good to know your options, just in case. If you are concerned about protecting personal assets, there are a number of ways to do it, such as putting your assets into a trust. Regardless of what you do no one is immune from litigation. If you are in business then you are a target and can be sued, regardless of fault. Some people will file a suit and hope for a settlement without having to go to court. Whether you settle or fight, you will spend money on defense.

 

If you are leased to a carrier then his Insurance will still defend you...

I have one right now, BI claim. The person has gone against our insurance and was denied. Went to Arbitration and lost. The lease operator has his truck registered under an LLC. Now this lady has filed suit against the LLC and the driver [owner]...Our insurance carrier is supplying the law firm to defend this suit too, the person owning the LLC has to agree to the firm supplying their defense and has to cooperate w/the lawyer...no out of pocket cost so far.

I've seen similar situations and the lease operator only lost a day's work traveling to court to sit w/ the lawyer the insurance provided. He was not incorporated so he had to go to court since the suit was agains him personally.