Business Management question for any contractors

Im a sole proprietor right now which is slightly insane i am insured for almost a million and I have only been taking jobs with people I know since i started my own business about 2 years ago and left employment of someone else's company
Basically I moved and I never really got into the business side as an employee.
I do have contracts that state no warranty unless an extended warranty is paid for and a limitation of liability clause (not more then Labor paid to date for any reason).
So I am thinking about going LLC because its the next step up
Although I have been reading that in this state they can still come after personal assets even if its not gross negligence. basically the judge decides if you are personally liable in the case of a small company. I am guessing they probably always side against the owner.
After talking to one guy i met that is in about the same situation as me I figure its going to cost me at least another $1k a year if i can do most of it myself and as he suggested maybe more like $4K for corp fees and legal and tax prep, business registration every year.
considering I am a 1 person business and this can all be worth nothing if a judge finds I am personally liable anyway its ticking me off a bit but anyway
Do any of you guys do your taxes yourself? I do my own by hand right now and its not bad.. no turbo tax... Do you have any tips to lower my costs for accounting and record keeping or anything???
im more or less running on a shoestring just making it right now and I dont want to get screwed because someone thinks the cabinet i installed is a ladder to change a light bulb.
I would rather not LLC even but I guess I probably have to.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
snipped-for-privacy@anonamoo.com wrote:

My partner and I formed an S corp and I thought it was well worth it. The initial setup fee was under 500 bucks. I did my own taxes the first year, but in later years I gave them to an accountant. I had quickbooks, so I would just bring him a disc and he would go from there. Was not a big expense, something like 200 or so.
We wound up in a dispute with a homeowner which landed in arbitration. It was a great comfort being incorporated. a the legal professionals treated the corporation with respect. I would never run a sole prop. again. The liability in construction is just too great.
It's true that a judge can "pierce the corporate veil". I think that happens when people form corps and then pull all sorts of shenanigans because their assets are protected. If you run your corp on the up and up (definitely keep seperate bank accounts) I think you are pretty safe.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
In a previous post marson wrote...

Excellent advice. Make sure to keep your personal finances completely separate from the business accounts.
Pay yourself wages or a salary on a regular basis. Treat yourself like an employee of the company. Give yourself a reasonable, but not too high wage (or salary). Any profit at the end of the year, take it out in "dividends" because you don't have to pay Social Security or Employment taxes on that money. BTW, throughout the year you can also take "draws" against expected profits as long as you accurately account for them.
--
Bob Morrison, PE, SE
R L Morrison Engineering Co
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

You can probably take them as [quarterly] dividends, enjoying the same factors as Bob mentioned above.
Also, if you are away from your home office for extensive periods, you can pay yourself a "per-diem", which is also non-taxable. This, though, has a few critical restrictions, so find a CPA that goes beyond the superficial in knowing the more obscure parts of the tax codes.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Going LLC is nearly ALWAYS the way to go. The gist of it being that your liability is _Limited_, so, short of fraud or some such, your personal assets are separate and distinct from your business assets, and thus protected.
Matt
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

It only cost me approx $600 to form an LLC in GA using an attorney. Legalzoom.com has packages that include everything but your state fees for less than $500. Our corp fee is a whopping $30 per year. (Varies by state)
I would suggest using a CPA for tax prep. You'll need to shop around for one that understands your business. Costs can vary widely in that dept so I wouldn't try and compare with someone else's business. There are several ways to handle the tax side, and tax prep can be either very simple and similar to what you are already doing as a sole proprietor. Or it can be a little more complex by electing to be treated as a Sub-S for tax purposes only. You need to at least talk to an accountant and decide what's best in your situation. How you file will affect the cost of the tax prep.
Fran
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
In a previous post snipped-for-privacy@anonamoo.com wrote...

Most likely there will be no liability protection advantages, but there may be some tax advantages to going LLC (S Corp). I think you will need to hire an accountant to make recommendations for your particular situation.
After that, keeping your own books is pretty easy. If you end up being an S Corp. then get a copy of TurboTax for S Corp. It makes filing easy and prompts you for the correct information.
I used to keep the books and file the tax forms for a retail business (a sideline to my engineering practice) that was an S Corp. Never got audited in over 20 years.
-- Bob Morrison, PE, SE R L Morrison Engineering Co Structural & Civil Engineering Poulsbo WA bob at rlmorrisonengr dot com
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote...

There's both.
In the event of a legitimate error, you personal assets have protection that you would not have at all under a sole-proprietorship. There's also enormous tax advantages in doing a LLC as your taxes are assessed as well as deductibility.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Matt Barrow wrote:

There are so many details that people neglect that the corporate veil is often imaginary. Signing a contract and neglecting to add "President, XYZ Corp." or whatever is a common one.
R
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote in message

Considering a million transactions are handled every day, I suppose there can be slip-ups, but nothing remotely like the instance you refer to.
--
Matt
---------------------
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Bob Morrison wrote:

Bob, it sounds like you are saying that an LLC is the same as an S Corp, but that isn't my understanding. Did I read incorrectly what you wrote above?
Matt
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
In a previous post Matt Whiting wrote...

My thinking was that in order to get the tax advantages one must organize as an S Corporation under federal law. From the IRS web site:
    A Limited Liability Company (LLC) is a relatively new business     structure allowed by state statute.
    LLCs are popular because, similar to a corporation, owners have     limited personal liability for the debts and actions of the LLC.     Other features of LLCs are more like a partnership, providing     management flexibility and the benefit of pass-through taxation.
    Single Member LLCs
    Generally, when an LLC has only one member, the fact that it is an     LLC is ignored or disregarded for the purpose of filing a federal     tax return. Remember, this is only a mechanism for tax purposes. It     doesnt change the fact that the business is legally a Limited     Liability Company.
If you organize as an S Corporation the last paragraph regarding filing as an individual is no longer true. So, for the best of both worlds one can organize as an LLC and an S Corporation.
However, I should mention that the LLC structure does nothing for the protection of the professional engineer who is a sole practitioner. In most jurisdictions both the company and the engineer personally are liable for errors and can both be involved in litigation. The lawyers will generally go after whichever entity has the most assets. So, you could form an LLC and have the E&O policy in the name of the LLC. In that case the lawyers would most likely leave your personal assets alone.
--
Bob Morrison, PE, SE
R L Morrison Engineering Co
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Bob Morrison wrote: ....

I don't think you can do that for a single entity -- it has to be one or the other. As a practical matter, I can't see any advantage whatsoever for trying to retain a single-partner LLC as a parallel/duplicate entity if one has incorporated. There's more isolation under the corporation articles than under an LLC in most state's rules, anyway, plus you've already pointed out that there's no (federal) tax advantage whatsoever w/ a single-member LLC (and states I'm familiar with follow federal rules in that area as well altho I suppose there are some that might have their own rules that deviate there.)
On the professional liability issue, I agree.
The upshot of the whole thread is OP needs to get competent legal and accounting advice for his locality and position rather than relying on word-of-mouth from friends and relatives and usenet. Altho some advice here is worthwhile background, it's not worth much more than the fees paid. :)
IMO, ymmv, $0.02, etc., etc., etc., ... :)
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

My company is an LLC but we elect to be treated as a Sub-S for tax purposes. (There is a form to fill out for the IRS) I think that's what he is referring to. You get the tax benefits of a Sub-S but the simplicity of the LLC in everything else.
Fran
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Fran Bragg wrote:

Hmmm....I didn't know the IRS gave LLC's that option. If that is so, I can see it. (I guess what I mean is "that being so" as I certainly can't argue against what you're doing. )
I was only aware of the section above the Robert had posting on treating single-member LLCs as sole proprietorships, so I stand corrected and guess this qualifies as my "new for the day" item... :)
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Finding the keyboard operational snipped-for-privacy@anonamoo.com entered:

I am not in the construction business but this is the gist of what I learned when we incorporated. One, talk to some lawyers. Not just one, several. Make sure that they have experiance with very small businesses. Also talk to several accountants. Again find those who know what to do with very small businesses. Since most of these folks will give a free consultation treat it like a class in incorporating. Also, you will be getting information pertaining to your state. For the record, we have a corporate attoreny that charges us a small retainer. I think it's $250 or whatever he gets a hour. If we don't use him, it gets rolled over for the next year. Our accountant's firm only does small businesses and sometimes calls us to check in. He doesn't charge for those calls BTW. He gets an estimated ammount for all the quarterly taxes, payroll taxes, fees, etc. I never have to worry about paying corp. things on time. He takes care of it. One other thing, before you get hooked in to TurboTax, which is a great program, find out what your accountant uses. Bob
--
--
Coffee worth staying up for - NY Times
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Back when I incorporated, I was a full corporation. There was talk of an "S" corps but so far just talk. I have never heard of a LLC. New things every day.
entered:

Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Site Timeline

Related Threads

HomeOwnersHub.com is a website for homeowners and building and maintenance pros. It is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.