Sole Proprietor vs LLC vs S-Corp

I have owned corporations for many years. There are some tax advantages to operating under a corporate umbrella. I can fill out the paperwork and incorporate in my state for $100, unless I choose to hire a lawyer to do it for me. I need to file 2 reports each year and there is a minimum tax that I must pay. The minimum cost to maintain a corporation in my state is about $120/year. It only takes about 5 minutes to file my annual report and send them a check for $20. The other form takes a little longer and I need to send a minimum check of $100. Both fees are tax deductible. Operating under a corporate umbrella makes it easier to keep your business separate from your personal. I know some who only receive dividends from their corporation. I don't recall a law or rule which states that you MUST pay yourself a salary. You can save some taxes by only paying yourself dividends. Some people pay themselves a small salary and the balance in dividends, saving taxes. It does look better to the IRS if you pay yourself a salary. It makes you appear to be more like an employee.

I have never owned an LLC or LLP. I prefer the standard corporate structure. An S election can work better for some people. There are some protections are offered by operating under a corporation, but it may not afford as much protection as you might expect due to the limited number of owners. And the way our judicial system works these days, you can find yourself in the middle of a lawsuit for just about anything. If a lawyer or individual thinks that they can get a big payday, they may file a lawsuit.

If you are incorporated, you can set up your own 401k or other type of retirement program. You can't do that as a proprietorship, unless the laws have changed. You need to find what works best for you and your situation.

 

The IRS can disallow dividend treatment if you do not pay yourself a “reasonable” salary. What they consider a “reasonable” salary is not really defined by them but you can be sure if you are paying yourself nothing but dividends they will disallow it if you get audited.

 

This is true!

An LLC is your best bet due to "Pass Thru Taxation" and corporate protection.

It is true that if the driver (you) is found liable you can be sued -- this is also true if you are a company driver or driving your POV.

There is a lot that can happen as an O/O that the driver is not liable for that makes it for to important to be under corporate protection.

You would crazy not become an LLC.

 

I didn’t mean to say that I would prefer a LLC over a Sub S, I would not. Just that if you do use a Sub S you need to pay yourself some sort of salary.

Just pay yourself 25 cents per mile and the rest in dividends.
If you get audited tell them you are a horrible diver but as an investor you deserve every bit of return you can get for investing in a trucking company.

 

An LLC and S Corp are two similar but different types of business structures. The S election is something you do through the IRS. It has to do with the way you are taxed. You incorporate your business as a regular C corporation and file an S election with the IRS. In order to change your business structure from a LLC to a sub chapter S corporation, you would likely need to dissolve the LLC and incorporate the business as a different entity.

 

Yep. Go through a reputable company to incorporate as well. They usually have someone who can explain or has a wizard to help you best identify your best option. Watch out for anyone who offers free incorporations. State fees, taxes and registration should always be included in the cost.

Here is a wizard I was talking about. http://www.corpnet.com/start-a-business/business-structure-wizard/. Hope that helps.

 

Oh please don't forget the d.readful "franchise" tax each year that goes along with the S corp. That one never made any sense to me,but hey incorporating has had tremendous benefits compared to when I was just "self employed". If I were you,I'd have an acct do everything for you, however it is your responsibility to "over see" your business . Regardless of what you do, Big Brother will send all kinds of bullets your way,and best to have an acct in place to help. That is their "forte'" and stay on top of new rules and tax laws. I can't even imagine having a business without being incorporated.

 

I have set up several corporations over the years. I can't see paying someone to do it for me. The last time I used a lawyer to set up a corporation for me was around over 40 years ago and he charged me $1,100. I can set up my own corporation myself for a $100 filing fee in my state. The franchise and excise tax has a minimum charge of $100/year in my state. I don't see the need for it other than generating tax revenue. But, that is what government does, find ways in which to generate more tax revenue.

It is a good idea to have a good CPA and/or corporate attorney, whether you use them to assist in incorporating or not.