Best business entity for saving capital?

cody willard

cody willard

Participating member
Location
Tulsa
I am wanting to start a company in the next month for my side work in transitioning to full-time work next year. I’m currently working for a company that’s teaching me crane work so I think it’s valuable to just work part time for myself and also start building up some referrals.

I’m hoping to do at least $25,000 in sales for side work this year, I would like to save at least $18,000 of that in the business account in order to pay off the truck and build capital. I’ve been told by a few that with LLCs and S Corp you have to pay yourself a reasonable salary which is 60% of the gross. I make enough money working for my employer I don’t need any extra kickback from the company I start, I really would like to just save up all that money just to build up the company even more and possibly buy a chipper next year.

Also, Say I do 25,000 in sales, and make 33,000 at my employers. Would it make my personal income look as if it was $58,000? Or would it depend on how much I draw out of the business account?

Would a C Corp prevent this Because my business would be taxed separately to my personal income?
 
Three professionals you need to guide you toward your business goals. Lawyer, Accountant and Insurance Agent. Sounds like you should be talking to an accountant now.
 
Start your LLC. Finance chipper now or save till end of year, pay cash and write it off. Will make it look like you made no money. You will still pay taxes on your gross minus write offs. Big brother will want his cut.
25000 gross income
20000 chipper cost
5000 taxable income
 
I will be meeting with a CPA in three weeks to get going on it all, I just wanted a rough idea of what I might want to choose. Also, what kind of stuff with the lawyer deal with? How are the involved with setting up a company?

What I am concerned about is we have health insurance for our new son threw the state until we hit an income of $52,000. I really do not want to loose his insurance yet because he has been having some medical expenses that are very high. Say I make $33,000 threw my employer and do 25-30k in side work will it look like I made 58-63k on my income?
 
I currently work a full time job and run my own business on the side. The answer is yes, it all counts towards your income at the end of the year. As far as taxes go, if you do not want to pay on 100% of your earnings, make sure you buy some equipment. That will reduce what you have to pay. I am not sure if the insurance will work the same way? My insurance through my employer does not have a salary cap.

You could always take some time off from your business at the end of the year if you are making to much.
 
cody willard said:
I will be meeting with a CPA in three weeks to get going on it all, I just wanted a rough idea of what I might want to choose. Also, what kind of stuff with the lawyer deal with? How are the involved with setting up a company?

What I am concerned about is we have health insurance for our new son threw the state until we hit an income of $52,000. I really do not want to loose his insurance yet because he has been having some medical expenses that are very high. Say I make $33,000 threw my employer and do 25-30k in side work will it look like I made 58-63k on my income?
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Not if you spend 30k on your business. You can even run it into the red the first few years.. these are the questions you need to ask the CPA. Another option is to go sole proprietor for a little while, but it’s a pain in the butt to switch.
 
Sole proprietor to LLC is a snap. It cost us right around $600 to have the lawyer fill out the paperwork and register us with th state.
LLC affords you personally some protection if something goes wrong in the business. You do not have to “pay yourself” but every penny is income and would count toward that cap.
LLC to S-Corp is as easy as checking a box on the tax form. The accountant can complete that. This is where you pay yourself a salary and taxes out of that. Little more of a paperwork hassle from what I understand but your salary is your salary. So 33k from employer and 18k from the business would be 51k and under the cap even if the business made 50k (just don’t draw money). Of course you want to clarify all of this with the accountant as they can explain and advise which is best for your situation.
If your goal is 25k in side work this year and you want to go full time you will need to step it up. It doesn’t take long to burn cash in this business. It’s not hard to spend 15-20k in insurance, 12-15k in fuel and help is a killer. Some days it feels like a funnel lots of money in but little makes it into the pocket.
Good luck, there’s a lot of guys here pulling for ya!
 
Agreed.

Iron doesn't drive (yet) or rake (well, fine raking...haven't tried the BMG rake, yet), crack jokes, or provide an extra set of eyes.

Iron is also never tired, sick, hung-over, had a fight with spouse, distracted, 'thought you meant _____', sucking up WC dollars. Iron always brings the A-game.
 
flyingsquirrel25 said:
I have... bought more iron than employees! But at some point a person is better than any piece of steel. I would love to see the almighty treeMec complete the job my contract climber and I did yesterday. It comes down to business models.
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I've worked with a Mec and great climbers.. nice to have both going at the same time , that's productive !
 
That's interesting.. Up here in the great white north your company income in an LLC is not the same as your own. It depends on how much of a salary you take home.
 
Ryan Keats said:
That's interesting.. Up here in the great white north your company income in an LLC is not the same as your own. It depends on how much of a salary you take home.
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Here the income is separate too. But if you have a straight LLC you can “draw” money anytime. I don’t take a salary I draw. If you elect the S Corp side you must take a salary and pay personal income taxes on that (including SS, Medicare feds, state, local, etc...). You can then pull a draw and only pay the income taxes (no SS or Medicare).
 
One thing to remember is that whatever kind of entity you form, once you are in business, you can deduct a lot of the normal expenses you have from your income for tax purposes. Including a home office, part of your utilities, internet, phone, computers, truck, mileage, if you own your home you can rent yourself office space. All of these things you already pay for become a business expense and that money does not get taxed.
Definitely talk to a lawyer and cpa, the organization options depend a lot on how much money will be passing through them and how much legal risk you are taking on. There are a lot of structure options.
Based on your description so far I would guess an S Corp would be a good fit, it gives you the same tax write offs that corporations get, but any profits flow down to your personal taxes and get the lower tax rate. I ran an S Corp for about 15 years and it worked well. One advantage for this is that if you plan and track your expenses, you do not have to show a profit for several years, this means you can use the money for expenses like what I said above, and wind up paying $0 in taxes on the money you make on the side, and it won't push your family over the income limit in your example.
The tax system in the US is designed to make people think they are in a "low tax bracket" and then make them pay taxes on everything. Corporations on the other hand are in a "higher tax bracket" but they can write of most of the money they make and use, so in the end they pay very little in taxes. Quite the scam going when they give Joe Paycheck a "tax break".
 
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More things screwed up, that you are about to take advantage of ;).

When you get a paycheck, they tax all of it, right off the top, then you have to pay for your living expenses out of whatever is left.

Once you are a company of some sort, you get all the money up front, then go buy -

Gear and ropes, work clothes, safety gear, gas for the chipper, the chipper, boots, saws, travel costs if you have to stay overnight somewhere for a job, your hotel room, meals, snacks, etc. Even your haircut (required per company guidelines) plus everything I mentioned in the post above, buy all that stuff and then only pay taxes on whatever money is left over...

You can see how blue collar employees are actually the ones footing the tax bill, not that companies are bad, they just have a lot of advantages written in. You should take those advantages, get your business rolling, and then hire people and treat them well. Sorry for the derail, I shouldn't be allowed to Internet after 8 o'clock or so.
 
FreeFallin said:
More things screwed up, that you are about to take advantage of ;).

When you get a paycheck, they tax all of it, right off the top, then you have to pay for your living expenses out of whatever is left.

Once you are a company of some sort, you get all the money up front, then go buy -

Gear and ropes, work clothes, safety gear, gas for the chipper, the chipper, boots, saws, travel costs if you have to stay overnight somewhere for a job, your hotel room, meals, snacks, etc. Even your haircut (required per company guidelines) plus everything I mentioned in the post above, buy all that stuff and then only pay taxes on whatever money is left over...

You can see how blue collar employees are actually the ones footing the tax bill, not that companies are bad, they just have a lot of advantages written in. You should take those advantages, get your business rolling, and then hire people and treat them well. Sorry for the derail, I shouldn't be allowed to Internet after 8 o'clock or so.
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On your personal taxes you can itemize this year too, but most people don’t because their expenses do not rise above the standard deduction that the government gives you anyhow (which by the way went up for 2018). And unfortunately you can’t deduct the hot tub, pool, ‘67 corvette, vacation (unless business related) or many other things that people buy personally.
It’s that not the business gets a tax break or even get it easy. As a self employed business owner I certainly pay more taxes with the business then I did working for someone else. Yes that’s a function that the gross income is quite a bit higher, but it also is a function that the employer pays a few taxes for the employee according to law. For us they call it self employment tax.
@FreeFallin is right though being a business owner has many other benefits well beyond the tax side (I actually feel robbed quarter) and it is absolutely worth setting it up and setting it up right. We have morphed from sole proprietor straight through to almost an S Corp and it’s not difficult to “progress”to the next step when it’s time.
 
flyingsquirrel25 said:
... unfortunately you can’t deduct the hot tub, pool, ‘67 corvette, vacation (unless business related) or many other things that people buy personally...
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You're right of course, and i realize this is my personal derail, but i had to share that there are exceptions even to this - once you have money and credit many things become free.

I have a relative that had a little cash and good credit, so he got a loan and bought a 200k luxury RV. Then he leased that RV out to an RV rental company 11 months out of the year for more than his payments. The end result is he gets a luxury RV for a month every year for free, and the rest of the year he gets paid to NOT have a luxury RV. And because now he is an "equipment leasing company" at tax time, he was able to amortize the value of the RV over the first few years and never pay taxes on the income until he sold it.
There are perfectly legal games within games, once you understand how financial tools work.
 
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