LLC or Sole Proprietor???

Really? Is that like the pre-tax situation you might get from a 401k??

 

you pay taxes on profits from stocks

 

The IRS does not recognize an LLC. You can choose from an LLC how you want to be taxed, as a sole proprietor, or as a S-corp. The S corp usually does no benefit until you are paying taxes on an income of $65000.00 net, not gross. The costs of having a corporation add up.

 

I am doing an LLC taxed as S corp. I pay myself a salary based on prevailing annual income of truck drivers in my area... about $40K a year. That amount gets taxed for income and SSI. Any other money the LLC makes, it is distributed to me and only income tax applies, no SSI. When you consider that self employment tax is 15.5%, it can make a substantial difference. Essentially, my net last year was around $80K. Only half of that gets hit with SSI. That saved about $6200 that year in taxes. It was only $200 for me to set up LLC and file the appropriate stuff to state and IRS. I do have to file payroll taxes either monthly or quarterly on the wages I pay myself, and still make estimated tax payments on the projected distributed income. A few extra minor steps, but worth it for what I save.

 

But only when money is withdrawn from the IRA at retirement. The total one puts in and the growth over the time period gets hit with income tax at time of withdrawal. That is why I have preferred Roth accounts. Money is taxed up front, but fund growth is not taxed later. Since income taxes always seem to go up over time, I would rather pay tax on the money now than get hit later in retirement when I need the money most.

 

The LLC protects personal property from being used to pay off debt from the business. It doesn't protect liability for driving actions, so that aspect of what you say would be true. If the business failed or filed restructure under bankruptcy laws, personal property cannot be taken to make good on business debt. Only assets in the LLC can be touched. But the LLC is not going to protect one's credit rating from going into the crapper under that situation.

 

Definitely talk to your lawyer on that. My commercial fishing vessel is set up as an LLC to protect me from any incident. Could be anything from an injured deckhand to trying to save someone sinking then getting sued. I can see where some guys say go Sole proprietor but at same time you dont want to lose your home because a bum runs out in front of you. Always cover your ###