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arboromega

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you guys who dont own or work for a company and just hire out you skills.... did you incorporate yourself as a business for tax reasons? how do you work that from a business standpoint?
 
I disagree with Brian, incorporation is a wise choice. for the few hundred bucks it costs to incorporate Ive saved thousands in taxes.
In MN a sole prop. will pay 7.5% self employment tax (in addition to income taxes). By incorporating(merely changing the legal status of your company), you do not pay self employment taxes as you are basically an employee of your company.
However, as an employer(your own), you will then need to match your S.S. and Medicare contributions as every employer does.
 
True, but you need not pay yourself your full compensation as salary. You can still pay as distributions and pay in estimates throughout the year just as a sole would. But you completly eliminate the SE tax. So it is not trade from 7.5 to 13. Trust me I have the records to show it. The first year I incorporated I saved over 2 grand. Been worthwile to me;)
 
The SE tax exists solely as a method to capture the funds that would normally be snagged by the "witholding agent" (employer in the employer/employee relationship).  You may have saved a couple grand through various mechanisms, but that wasn't were it came from.

Glen
 
Another item with regards to this question is legal protection - there are some legal shelters aforded to corporations, that are not there for self employed types.

Of course, anything can be pierced, but it is not as easy to lose personal assets when you are incorporated....

Just my .02 cents....
 
if you are incorporated i imagine you have liability ins. do you have this as a sole prop?
 
I've done it both ways, incorporated and not. The corp way, I was always having to work on some angle to satisfy the gov. Now I just carry libility insurance. And that is a biz expense like truck and gear, etc.

I agree with Rocky, keep it simple and your focus on the work if you are alone.

Jack
 
Another option beside incorporating is called an 'LLC' Limited Liability company, sort of in between sole prop and corporation. No corporate taxes to pay on any income, salary is 'passed through' to owner operator and liability is removed from person doing the work and put on the LLC. Small business does not really need to be incorporated and LLC does offer nearly the same as corp. benefits and less paperwork and hassle to set up.
 
I do a 1099 at the end of the year. My wife handles all the taxes. however I am gonna start moving towards my own company so LLC makes more sense for me.

Kenn
 
Originally posted by glens
The SE tax exists solely as a method to capture the funds that would normally be snagged by the "witholding agent" (employer in the employer/employee relationship).  You may have saved a couple grand through various mechanisms, but that wasn't were it came from.

Glen

I assure you that it where it came from. You are correct the SE tax is in place to get funds otherwise normally withheld by the employer. By eliminating the tax it is not required of me to pay it. Then yes I must match my SS and MC withholdings on "salary" drawn. What if i only draw a "salary" of 15,000 annually and pay my self another 30k as a distribution? the same as a sole prop. does. I pay my withholdings with matched SS and MC on the 15k and on the other 30k i pay in estimates less the SE tax.
7.5% of 30k is 2250.00 saved on the bottom line. Get it?
 
Oh, I get it.  You'd better put that 2k (per year?) into a fund from which you can handily get it if you're audited.  If you're going to play the game, you've got to play it right; if a scheme sounds too good it usually ain't very.  Nobody can out-crook the IRS in the long run, they're the masters (in more ways than one).

By the way, it would be more like 15% on the 30k if you're skipping out on the SE tax for that value.

Glen
 
there is nothing ill-legal about what Im doing. Being a corp. I am required to pay myself a salary but there is no min. amount salary required. The way I see it, I give enough of my money to big bro. if there is a leagl way for me to minimzie that i will use it. Ask your accountant, what im doing is fully legal--a benefit of being incorporated.
Anyway enough tax talk-lets talk about something more interesting like trees.
 
sorry tophopper, i thought this would lead to tax talk, but this info has been informative for me. i had never even heard of sole proprietor before so now i got some things to consider. thanks guys.
 
Laws are different in different parts of the world so I don't know if this applies.
We are incorperated and the tax breaks are huge up here but the real reason we did this was to protect our family
If anything goes wrong they can only sue the corperation, you and your family and home are safe
Big things to risk!
Also if you hit hard times or a resession in the economy only the corperation looks bad.
You don't lose your personal credit
Later
John
 
As mentioned above the laws differ by state. A contract climber doesn't have near the equipment expenses as an owner and should do fine as a sole proprieter. Also the corporate shell couldn't protect the contract climbers assetts because a one man band can be held personally liable for his negligent F-ups. In Oregon sole proprieters can legally team up on jobs. Whereas a contract climber set up as a corporation may have a hard time proving they are not an employee under this state's definition. My accountant said a corporation has to pay a "fair" taxed salary before untaxed distributions can be taken.

Sole proprieter makes the most sense for contract climbers IMHO. Corporations have a lot more paperwork, BS, and couldn't protect a one man band from his F-ups.
 
An LLC gives you the same tax position as a sole prop. but adds some legal protection. Remember, as a corp you need to pay workers comp on your salary. You can limit that amount by making yourself an officer but you still must factor that in. In Ohio our rate is 53.3% unless you get a group rate. That would be over $7500. A lot more than the $2000 I would save. As a LLC or a Sole Prop I can waive Workers Comp. Just some food for thought.
 
Yeah, being an employer adds a whole nother dimension, which is why I'm not.
 
Yeah, but if you make less than $16,000 you dont have to declare taxes. Thats why cash is good. Unfortuanatly I cant be that shady.

Kenn
 
Originally posted by xander9727
Remember, as a corp you need to pay workers comp on your salary. You can limit that amount by making yourself an officer but you still must factor that in.

Don't have to pay any WC here on corporate officers or their family members. Regular health insurance can fill in for WC. That gets tricky though as you need to read the fine print. The insurance I had through the union had clauses so it wouldn't pay for trade related accidents outside of union work. Also insurance definitions don't always hold to normal english definitions.
 


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