Discussion:Tax practioner entities-choice
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Discussion Forum Index --> Basic Tax Questions --> Tax practioner entities-choice
Discussion Forum Index --> Tax Questions --> Tax practioner entities-choice
| 10 January 2008 | |
| All you tax practioners out there please chime in. What type of entity are you operating out of? Specifically this would be for WI. Are most of you just a plain sole prop, have any set up as a single member LLC to limit liabilities, have any set up single member LLC then made Sub S election and take a reasonable wage and the remainder of profits as shareholder distribution to limit SE tax? Anybody had any problems with above scenarios? | |
TheTinCook (talk|edits) said: | 10 January 2008 |
| In my state you can't practice accountancy in an LLC. We have to use LLPs which require a hefty amount of insurance. | |
| 10 January 2008 | |
| Sole prop. Can't be an LLC here either, CA. I have a small practice and S corp isn't worth the effort or additional taxes. | |
| 10 January 2008 | |
| I am operating in an SMLLC and plan to elect Sub-S once I can realistically lower my SE tax assessment by a reasonable amount.
Do you have insight into why CA keeps professionals out of the LLC form? Will | |
Death&Taxes (talk|edits) said: | 10 January 2008 |
| C Corp from back in the days when Health Insurance was a speck in the eye and not 100% deductible.
To limit liaibility, insurance is far more important than choice of entity, since as a professional you take responsibility for all you do. A SMLLC might protect you against claims if the work is done by others, but if you sign the return, you pay the freight. | |
Rgtaxservice (talk|edits) said: | 10 January 2008 |
| S-Corp. I figured the best way to learn about them is to be one. | |
TheTinCook (talk|edits) said: | 10 January 2008 |
| "Do you have insight into why CA keeps professionals out of the LLC form?"
In order to prevent victims of imcompetent professionals from getting screwed by limited liability. | |
| 10 January 2008 | |
| So what are we saying here. That in any state other than CA, you can operate a professional services firm as an LLC? Does this entity form actually limit the credit exposure to the assets of the LLC alone? If SMLLC elects Sub S status, does that have any effect on limiting the liability exposure of the professional? I have a letter ruling from WI dept of rev that states that the LLC statutes do not contain a specific section for the filing of "professional services" entities. If I make this move and it doesn't limit my personal liability, why elect LLC status, maybe with S election, other than to reduce SE tax with reasonable wage? comments please. | |
| 10 January 2008 | |
| You may want to discuss this issue with an attorney to get the specifics of your state. But generally most states do not allow a corporation or LLC/LLP to limit the liability arising from professional acts that you perform. Those forms of entities may protect you from general business liabilities and from professional liabilities arising from a partner or associate's act that you had nothing to do with.
So the decision as to form of entity likely rests on which tax poison you would like to swallow. S corp may provide opportunity for FICA/SE tax savings. C corp could provide opportunity to deduct medical expenses not deductible in S corp. Proprietorship may allow larger contribution to SEP or other retirement plan. If no employees other than yourself, proprietorship will also allow you to avoid payroll tax reporting. | |
| January 10, 2008 | |
| Nice summary JDugan! I formed an S-corp mainly because as a corporation I could get better medical insurance. I was considering dropping my S-corp election to get additional medical deductions, but I think I'm going to keep the S-corp status. Please note that an S-corp is not a legal entity. It is a tax election. The legal entity remains a corporation or an LLC, whichever one applies. | |
Death&Taxes (talk|edits) said: | 10 January 2008 |
| For someone wishing to maximize pension contributions, the S Corp has a large advantage in that the contribution is made with before Social Security dollars [Self-employment Tax].....even without playing games with FICA there is an automatic saving. E.g. on a salary of 80,000, a SEP contribution of 20,000 has saved over 3K, whereas the sole proprietor must show 100K+ of profit to attain the same deduction, and pay 15.3% on that 100K. | |
| January 10, 2008 | |
| Like anyone else...you start as a sole prop. When your total income begins to exceed a reasonable salary, begin to think of either the LLC or the S. I prefer the S, but given the IRS' stance of coming after S's of late, I just might choose to LLC and split my ownership between active/guaranteed salary and limited/not subject to SE, which would buy a few years until they started picking on them. In which case, you can always then go S! | |
| 10 January 2008 | |
| I am a 1-man shop, and in WI. I formed on-line LLC with state to save money. This form will give some added protection for my personal assets, as will the corporate form, although there is little WI case law to give confidence as to exactly how the liability protection will differ from the corporate form. The LLC protects me against slip & fall type liability, but in WI there is no professional liability protection through an entity veil, so you should get an E&O insurance policy.
Also, me and family have somewhat large ongoing medical expenses for chronic conditions, so I elected to be taxed as a C corp, and we have all out of pocket costs paid thru the LLC in a Med Exp Reimb Plan. This saves us tons of money each year. I zero out income every year so no taxes are paid at the corp level. On dissolution, I have found that it is not difficult to avoid 2 levels of tax if desired, if the liquidation is planned well. | |
| 10 January 2008 | |
| C corp. Qualified for fiscal year-end, which is awesome since I don't have to deal with my tax planning when I am focused on my clients. Also have MRP, not available to me in any other form. Changed to Paycyle.com a couple of years ago for payroll (I hate doing payroll and refuse to even do my own). Their system is great, as easy as it could be. | |
| 10 January 2008 | |
| CA doesn't allow any licensed professionals to form an LLC. So no accountants, doctors, lawyers, engineers, architects, (specifically excluded) etc. There is some question as to how far the concept 'licensed professional' reaches, ie, does it include anyone that must be licesnsed by the state to operate? Does this include your hair stylist or electrician too? | |
| 10 January 2008 | |
| D&T, isn't the SEP contribution deductible to a sole proprietor for FICA purposes?
And, are you suggesting running the S corporation at a perpetual loss? Ignoring FICA, if you have $80,000 of pretax, pre-compensation, pre-plan contribution income, you could pay yourself $80,000 and have a $20,000 plan contribution only if the corporation has a loss of $20,000 for the year; for it to break even, it would have had to take in $100,000, the same as a sole proprietorship. I would think there would be some risk of a reasonable-compensation challenge if that went on for a long time. | |
| 10 January 2008 | |
| Joann - may understanding of Calif. position is: If your license comes from the Dept of Consumer Affairs, no LLC. And yes, that includes the hair stylist to the electrician.....(which could be the same person under really bad circumstances) | |
Death&Taxes (talk|edits) said: | 10 January 2008 |
| SEP contribution is on the front page for a Sch C.....I was not advocating running at a loss, but someone with 60K of earnings in a S Corp could in theory pay themselves 40K, contribute 10K, have another 3,060 of employer's FICA and take the balance out as a distribution. | |
