LLC or Sole Proprietor or S Corp?

Lot of difference in gross and net income. I bought a spare truck and trailer to keep from paying much in taxes. Buy something you need/want for business and write it off. I'm thinking of a steam cleaning machine this year maybe some new tools.

 

I am an S corp in Illinois. My CPA has advised me to go this was to protect me from the "self employment taxes". You can pay yourself a modest wage, which you would have to pay medicare and social security on but you can also pay yourself what is called a "share holder distrubution". You would still pay income tax on this but you would save yourself the 7.5 percent by not paying the medicare and SS. I would strongly advise you to go and talk to a CPA and discuss your situation.

 

I'm a Sub-S (not trucking yet, consulting) have been for years.

Things to consider are - if YOU OWN the truck in your name (not the corp) then you still do not have corporate shielding from liability.

SS Taxes have to be paid one way or another.

As a SP, you have to pay double (employers contribution plus yours) - as a Sub-S you STILL PAY the same rate - but the 1/2 employer contribution comes off the Sub-S's as an expense.

Any "left-over" profit from the year (that is - more in the bank December 31st, than you had January 1st - is considered PROFIT - and Sub-S profit becomes PERSONAL INCOME for the principal (as reported on Schedule C).

I'm going to continue to use the Sub-S when I purchase the truck, as there's more lee-way to deduct business expenses as operating expenses in the Corp, than to try to justify them on an SP personal return.

Sub-S's pay you - the employee, either via 1099 (in which case you pay the self employed rate on SS) or as a W2 employee. I just take draws as needed, file zero on the first 2 quarters 941's, have my accountant check my numbers on 3rd quarter to make sure I don't need to make a payroll tax deposit - then he gives me my 4th qtr payroll tax deposit to make off my YTD mid-december numbers, and issues ME a W2 for my personal taxes.

My "personal W2 income" hasn't been over $15K - even though my gross revenue's average $150-200K.

For me - it's easier to run a Sub-S, and pay myself W-2 wages - than sole proprietor and have to justify all my expenses. The model may vary somewhat for the trucking versus consulting industries - but throwing off liabilities to an "artificial entity" (a corp - is always better than risking PERSONAL ASSETS with an SP.

Run over a school-bus with a Sub-S, and your liability ENDS with the corps assets. Do the same with an SP, and you are personally liable for everything you own, or may earn through eternity...

Rick

I am NOT an accountant or tax attorney - and while truck drivers are fairly well acquainted with how to run their business - it's always best to consult with ONE OR BOTH - and not make decisions of taxes and liability based on what you read on an INTERNET DISCUSSION BOARD.

Not putting anyone down here - just voicing my opinion based on my own experiences...

 

Rs,


That's exactly why I've used s-corp in the past.

 

While this ia all true, the one fly in the ointment is the liability of the driver. If you are the driver and get into an accident, you are held as the responsible party and the Corp does you no good. If you have a hired driver on the truck and the same scenario happens, then your Corp protects your personal assets.
This is why incorporating seldom makes sense for a single truck O/O.

 

Yes that is all true. An LLC is a pass through orginization only. This means the money that is made is still taxed as personal income. So what ever your tax bracket is is what you will pay in taxes.

The benefits of an LLC. is your personal assets are protected from any lawsuits that are filed under the LLC name. For example, a driver gets in to an accident. Only your llc can be affected, not your personal assets.

In a corporation, the money that your corp. makes is taxed and then you are taxed again for you personal income or you can call it dividends and be taxed at the current capital gains tax rate.

 

Hi everybody!
Just small note. After all biz expenses including salaries are deducted the "left over" profit that's called S-Corp distribution is shown in a schedule K-1, not in a schedule C. Whether you take that distribution or not you show it in your personal tax return in Schedule E and pay federal taxes (depends on where you live may be state & local taxes either).

 

My accountant basicly told me the same thing. When they saw I up around 70,000 they suggested going to an s-corp. They said the IRS would accept a reasonable drivers salary of 36000 and that is what I pay the self employment tax on. The rest of my pay I take as a distribution to myself. It basicly is a way to save on taxes because your not paying both employee and employer side of the taxes for anything over the $36000. I may not have explained it perfectly but it seemed to work when I they did my 2011 tax return. I also heard from another accountant, a lawyer and another business man that this was the best way to go.

 

In my opinion the "best" biz structure for today is an LLC taxed as S-Corp. But it requires a lot of paperwork & formalities.

When your biz is small you don't see any benefits that's worth that but when you grow you'd see savings in tax.

What I dislike about S-Corp distributions is that you should still make estimated payments to avoid a penalty for under withholding.