Discussion:LLC or S Corp for Tax Prep Business

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Discussion Forum Index --> Tax Questions --> LLC or S Corp for Tax Prep Business


Whode (talk|edits) said:

11 January 2006
If you were starting a small tax preparation business today, would you organize as an LLC or S Corp?

I'm leaning towards LLC because of the simplicity (no corporate meetings, no separate 1120, etc.) but not sure what I might be giving up. Other than the possibility of not paying SE tax on some of the earnings, is there anything else?

DZCPA (talk|edits) said:

11 January 2006
Schedule C is the easiest. Do you have any partners? Do you qualify to be a LLP? (Limited Liability Partnership)

DZCPA (talk|edits) said:

11 January 2006
Schedule C is cheapest. Your small practice might be burdened with the fees and filing requirement which will eat up your profits. I would wait until the first year has passed to see how the numbers play out.

PGattoCPA (talk|edits) said:

11 January 2006
I agree with DZCPA's comments. Here are a few more:

1) If you are a California CPA, you cannot form an LLC. If you are not a CPA (or in CA), check your state laws for its restrictions, if any. (I'm not sure if CA non-CPA tax preparers can form LLCs and, there may be different treatments for non-certified tax preparer and certified tax preparers. Certification is state-approved and via the California Tax Education Council (CTEC).)

2) Other than possibly the SE tax, why do you want the LLC? If for legal liability protection, it won't give it to you. A tax preparer performs a personal service, and the LLC will not protect you from a tort claim against you.

Msdotaxes (talk|edits) said:

11 January 2006
That is interesting. Can you explain a little of the "tort claim against you" statement. I also formed a LLC for legal liability protection as per a CPA told me to do. Now this term has me worried.

Riley2 (talk|edits) said:

12 January 2006
I am not sure that PGattoCPA meant to say that there is abolutely no tort liablity protection. Depending on your state laws, there could be tort liability protection for some torts (not your own acts of malpractice). For example, if a photocopier falls on a client's foot, there may be some protection against a tort claim.

You really need to consult a New York attorney.

PGattoCPA (talk|edits) said:

12 January 2006
Riley2 clarified my statement perfectly. (I was actually going to add a tripping incident that would be a "protected" incident, but the falling photocopier works just as well.)
         And to put a point on what Riley2 also mentioned regarding consulting with attorneys:

Anyone who is either considering setting an LLC up or whether you have an LLC now, PLEASE consult with an attorney to find out what kind of protection the LLC really affords you.

Whode (talk|edits) said:

13 January 2006
Thanks for all your replies so far.

DZCPA, when you say Schedule C is cheapest, do you mean Schedule C as a Sole Proprietor or as a single-member LLC?

Based on the responses so far, the consensus seems to be that the LLC doesn't have much additional protection (from malpractice, anyway) over a Sole Proprietorship and there may be additional fees, so there's not much reason to form an LLC, and in some states you don't even have that option anyway.

DZCPA (talk|edits) said:

13 January 2006
As Schedule C as Sole Proprietor.

Texan007 (talk|edits) said:

17 January 2006
Still haven't found a good reason to form an LLC. The main reason they were created was to avoid securities laws regarding having more than 35 shareholders. LLCs allowed corporate veil for attorneys, CPAs, and other large member types of organizations.

In a situation where there are only one or two shareholders, the fact that income is subject to self-employment is overwhelming in an LLC. Why not form a "close" corporation with an S election? Then you get corp benefits without the stockholder's meetings and some portion of the income is not subject to payroll taxes.

MollyRaabe (talk|edits) said:

18 January 2006
This is from Texas. I formed a PLLC (professional LLC) for the state of Texas, but file as a Sub S for federal purposes. The only fees paid are $200 to the state for the formation. I did my own operating agreement (found on the web for $9.95). If you are in the tax preparation business you shouldn't have any costs for filing your own returns.

Gmikeg (talk|edits) said:

20 January 2006
I like not having my SSN on my bank account for my LLC. $50.00 to the state of New Mexico PRC, and that's it. Oh, and by the way, what are the premiums for malpractice insurance these days?

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