Discussion:Is it better to form a LLC for my tax practice?
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Discussion Forum Index --> Tax Questions --> Is it better to form a LLC for my tax practice?
| 31 January 2006 | |
| I am open for business and I wonder if I will be better off forming an LLC to protect my personal assets than staying as a sole proprietor. I have read that the LLC won't shield me from Lawsuits, it will only protect me in case that I had employees. Is that true? Any thought on that?
Thank you | |
| 31 January 2006 | |
| In most states, a professional is liable for his own acts of malpractice. However, in some states it is possible to obtain protection from the acts of malpractice of others by forming a limited liability entity. However, in my state of residence (California), professionals may not form LLC's. You should consult an attorney in your state to discuss your options. | |
| 1 February 2006 | |
| Do you mean I will have to form a PLLC? I live in California too. | |
| 1 February 2006 | |
| PLLC's are not allowed in California. However, If you are a CPA, consider setting up a professional corporation. CPA's are also allowed to set up Limited Liability Partnerships with other CPA's. | |
Inagpurwala (talk|edits) said: | 2 February 2006 |
| Isn't true that sole prop can get E&O Insurance to shield from law suits? That what I was told I am planning to do. | |
| 2 February 2006 | |
| E&O insurance is a good idea for any professional; even a very competent person can make errors. The insurance will not really shield you from lawsuits. If you are sued and found liable though, it will pay for the settlement up to the terms of the policy. | |
| 2 February 2006 | |
| LLC? Don't you want to play the S-corp game? i.e. S-corp paying out "reasonably" low salary to yourself so you only pay the 15.3% fica tax on some of your income rather than 100% of your income if operating as an LLC. If you wait till after tax season, it's gonna be to late for this year!! Even though it's your first year in biz, maybe you'll make more money than expected and you'll want to pursue this. Oh yeah, can't get to greedy with this tactic though, sounds like the IRS may start going after those that are being too aggressive with this tactic. Good luck! | |
| 2 February 2006 | |
| What about the Personal Service Corporation tax when a CPA has an S Corporation?? | |
| 2 February 2006 | |
| I am not a CPA, I am going to become EA very soon.
It will be great to have more business than I think I will have. Things don't look too bright right now. I hope to be wrong. How many clients should I spect to have the first year in Biz? I don't have a store front, so I am relying on friends, family referals and some ads in the classified papers. | |
| 2 February 2006 | |
| I would say that a lot depends on the population of your city and how mobile people are. People tend to be very loyal to their tax preparers. Its a good thing when you have an established practice but its bad when you are starting out. People generally won't switch just because they see an advertisement and the people that do will probably switch away from you in a year or two. If your city is growing a lot or people come and go there is more possibility of picking up clients.
I started by joining an existing CPA and then bought him out when he retired. I would have never made it to where I am now by starting from nothing. It can be done, but it takes longer. If you are a good public speaker, I think an effective and cheap method of picking up clients is to speak at Rotary meetings and similar functions. It seems much more effective to me. The only serious marketing that I have ever done is a direct mail thing to people that had moved to town in the previous year. I bought the list from a company that sells mailing lists. The list was good and I selected based on zip code (there are 7 or 8 zip codes in my city). Out of 3,000 mail pieces, I picked up about 12 clients. The mailing cost me $1500-$2000 with postage and all and many hours of my time putting it all together in December. It was a break even deal the first year but I have retained most of the clients so it was okay but not good enough to do it again. But I think the public speaking is more effective and definitely cheaper. | |
Chautauqua (talk|edits) said: | 3 February 2006 |
| Warren gives good advice in the previous reply. I particularly like to read a piece with good spelling and decent sentence construction. The best way to avoid liability is to make no errors in tax preparation. Defer the form of organization until the volume and net income justify something exotic. The way to learn taxes is to become hired as a reviewer, preferably for multiple preparers of reasonably complex returns. You will learn more, faster than doing preparation. Particularly, hire on as a reviewer for a preparer that plans to retire in a couple of years. Or, consider buying a practice when you are ready. Otherwise, joining a church or temple, perhaps volunteering as Treasurer, will get you more exposure, quickly. I don't like advertising, as you will get price shoppers. You spend 10 minutes reviewing the complexity of their tax situation on the phone, give them a quote, and they hang up and call another preparer. Even if you get the return, the following year they are price shopping, again, going with another preparer for a $5 or $10 lower fee. They are doing themselves a disservice doing this, as they do not develop mutuality of interest with a preparer, and run the risk of overlooking and dropping a NOL, CLCF, or some such. If someone comes to me, and I see a different preparer for each of the past couple of years, I politely tell them that I don't want to do their returns (unless they can give me a good reason for the annual switch of preparers), and I tell them exactly why. | |
| 4 February 2006 | |
| Thank you for the advice.
In order to be reviewer you have to know a lot about taxes, I guess. This is going to be my third tax season. Do you think that I am ready for that? | |
| 6 February 2006 | |
| I wonder of the same thing: Right now I really don't have any liability protection or insurance. I am currently a sole proprietor, 3rd tax season as well, and gain more clients rapidly mainly through referrals. My clients are all good and loyal - don't seem like there would be problem. Should I be getting some type of liability insurance? Any advice would be appreciated. | |
| 6 February 2006 | |
| Hey Bean I am glad you are doing great! I am going to get liability insurance although I am going to do my best, but we are human...
How many clients did you have the first year in business? And how about now? This is going to be my 3rd. season but I worked as an employee for the past couple of years. So it's my first tax season on my own. I need some encouragement right now. Thank you! | |
| 6 February 2006 | |
| This is also my 3rd tax season and the first season I have really been focusing on increasing my client base. I am a CPA and wondering about E&O insurance too. I did some research today and am having a hard time finding companies that provide this insurance, especially at a reasonable price. Not sure what I will do. I just picked up a client that needs me to provide accounting services too (financial statements and other financial advice for retail chain) so I feel I must have some type of liability insurance. Any thoughts?
My first season I had 5 clients, last year I did no advertising and a few of my clients moved out of the area so I only had two. So far this year I have 10 and the accounting services above. | |
| 6 February 2006 | |
| Pejay900, check this web address for E&O insurance.
http://www.target-capital.com/pdf/Tax_prep_overview.pdf I hope to have more clients the first year because I am not a CPA and I only want to do taxes. | |
| 7 February 2006 | |
| Lalva-
thanks for the information. I think I will get the insurance and continue to operate as a sole proprietor. I don't think I have enough business to warrant incorporating in any way and my biggest cocern is just the liability. Good luck this year. | |
| 7 February 2006 | |
| I looked into laws in my state and it seems that as a CPA I can form a professional LLC. Is it better to do this or just have the E&O insurance and keep operating as a sole proprietor? | |
| 7 February 2006 | |
| You should always have E & O insurance no matter what type of entity you are. | |
