LLC, S Corp or Sole Proprietorship

I was a sole proprietor until the carrier I'm leased on with changed their policies in order to protect themselves from employee misclassification issues. They no longer deal with sole proprietors. Anyone wishing to lease a truck on with them has to incorporate, and the carrier deals with the corporation. In other words, instead of me personally leasing my truck on with the carrier, my corporation leased it's fleet of 1 truck on with the carrier. I am an employee of my own corporation.

I chose to incorporate as an LLC. Since I do my own taxes, it seemed easiest as a single member LLC is a disregarded entity and therefore I still file my taxes as though I am a sole proprietor.

As I explained in your other thread, an S-corp or C-corp could have some tax advantages (not paying Social Security and Medicare taxes on the "business" income, only on what you pay yourself in wages)....however, you then pay corporate income tax on the "business" income...as well as the company's share of the employment taxes (Social Security & Medicare), personal income tax on the "wages" you pay yourself...as well as your personal share of the employment taxes....and then when you pay yourself dividends, you pay capital gains tax on those...

If you're paying someone else to do your taxes for you, talk to them. Otherwise, do what is easiest for you.


The biggest benefit you'll have by incorporating comes if you ever hire a driver or any other employee. Then, you'll start to see asset protection (provided you have maintained strict separation between "business" assets and "personal" assets. If there is a crash, the motor carrier under who's authority you are operating will be sued. The owner of the truck will be sued. And the driver of the truck can be sued. If you are all 3, you really don't have "protection". However, if you have a hired driver, then your corporation would be sued as the truck owner (and possibly the motor carrier if you are an independent)....but your personal assets would be safe. Your driver might face lawsuits if he is perceived to have anything of value which he could be sued for.


In all honesty, you aren't going to really "save" that much money by incorporating. The government is going to wring the money they want out of you no matter what you try to do...so even though you might save a little on the employment taxes by forming an S-corp or C-corp, you'll still have your annual filings with the state (and the fees for doing so). Even LLC's have annual filings to complete. There are also other rules you must follow when you incorporate in order to maintain the protections offered by the corporation...so you'll probably want to speak with an attorney as well as a tax adviser rather than basing your decision off of what you might read here on an internet forum.

 

An LLC will help you separate your business and personal finances - if you need help in that department. The IRS looks at a single-owner LLC in the same light that they do for Sole Proprietors, and taxes them in the same manner and rates. There is no tax advantage in getting the LLC.

An S-Corp does have tax advantages for someone making enough money continually. There is more paperwork involved, thus more of your time is going to go into managing your business. You'd be best advised to consult a CPA to see whether there is enough tax advantage to make it worthwhile.

 

There is really no sense in incorporating for a owner operator. As the driver of the truck, if you was to be sued in a accident, you as the driver would be sued also, so incorporating would not protect your assets at that point.

There might be a few tax incentive but from what accountants have told me, not enough to make incorporating worth while.

 

Exactly....

OP, there is no benefit UNLESS you were to put a driver in your truck, then by all means you need to protect your personal assets if your driver screws up badly. As far as taxes... again just more paperwork to fill out which will cost more to file every yr..... but its cool to tell people you have a official company name.

 

I personally am a Sole proprietor

 

There is no benefit from an asset protection standpoint but potential big benefits as a sole prop using an S-Corp. You become an employee and pay yourself at a rate that is normal for a person doing your job. So no paying yourself at a trainee wage.

Then the rest of the income passes through the S-Corp to you and is taxed at your tax rate but you do not have to pay all the employment taxes.

In terms of costs, that is a state-by-state issue. In IL and several other states I have looked at the LLC was more costly.

Tax paperwork wise there is more involved in filing your federal taxes with an LLC compared to an S-Corp.

On going paperwork I could not comment on but my S-Corp is no issue. And in terms of setting it up it is about the same.

 

Depending on the amount of the income, an S-corp is not always the best way.

I incorporated my trucking business for a while as a C corp. There were many reasons that I chose this even though the ignorant attorney filed papers for an S corp and tried to bill me for it. He lost.

My reasons were:

Corporate tax rates were lower than my income bracket from outside sources.
Corporate benefit plans could be started and used to avoid taxable income.
Established pension and profit sharing plans to shelter income to me for 25% of the salary.
I paid my wife a salary for work performed.
I paid myself a set salary and work benefits while on the road.

There are many reasons to examine on any example as to what the end result is.

 

Yes, I was going on assumption that the income was high enough to justify the state fees for corporations.

The S-Corp is a Corporation that elects S status from the IRS so that income can pass to the shareholders without paying corporate income taxes. Avoiding double taxation.

Your strategy is VERY rare in that most people are not going to be keeping money in the corporation being able to avoid also paying personal income taxes. They are needing that income.

And question on this. At a certain point don't you have to have that money invested into something? It is my understanding that the unlimited parking of income in a corporation for the purposes of avoiding taxes is an area the IRS frowns on.

 

One way to look at it is to protect those funds to be utilized as operating capitol for the corporation.

My first company, I would have to pay payroll and operate the business from one project to another. I needed to protect those funds from income tax until I passed it through to me.


I see the same thing with an O/O.