Author Topic: New business in 2018- many questions  (Read 921 times)

MEJG

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New business in 2018- many questions
« on: December 20, 2017, 01:10:37 PM »
Hi All,

I've been trying to educate myself, on the forums, reading articles, attempting to keep abreast of the upcoming changes to tax code.  I still find myself confused and I'm hoping to clarify a few points.

My current CPA is retiring.  I have spoken to the person taking over his business and may use him for my future needs but he seems not terribly familiar with small business taxes.  He seemed to think my only options were LLC or S-corp and didn't know what I was asking about when discussing LLC and electing S-corp for taxes.  It may be my misunderstanding of the possibilities.  I will also be interviewing a few other CPAs, including one that specialises in small business taxes.  So I will be using a professional!

I will be going from a PT W2 employee with the occasional, quite small in terms of yearly income, 1099 work this year to working for myself in Late April/ first week of May next year.  I estimate my weekly gross income to be $1,600-2,000 with a 2018 income between $55,000-75,000.  In subsequent years it should scale with weeks worked, so averaging about $100,000 gross/year.  I plan on these types of hours per week from 2018-2021 and bumping up to closer to full time hours in 2022 for a rough estimate of $130-150,000yr.   I am in a service profession, will be under the income limit for MFJ for the new legislation on pass-thru income.  Of course anything can change but I'm providing rough numbers in case my income appears small enough to those on the board to not make the expense of a small business CPA and quarterly taxes worth it...  I welcome your thoughts.

Business expenses are minimal for my field. I expect to write off $3-5,000 in expenses per year, don't have a home office etc.  I will be traveling but intend to charge my hourly rate for travel so cannot write off millage on my car, but perhaps can write off maintenance?  I may do some more expensive continuing education, but that would be every 2-3 years not yearly and is not required (lots of free CE availible). I am sure a good accountant can help me maximise my write offs, what I will be doing just is a low overhead business.

My goal is to take home between $3-4,000/month, this will allow us to maximise the tax deferred space at my spouses job and maintain our current budget and then after that reduce our taxes and maximise our tax deferred accounts.  So I aim to put as much into my solo401k as possible both thought employer and employee contributions.

My understanding is there are a few ways to do taxes and that an LLC and electing s-corp taxation will be to my best benefit.  Here are my questions

1) Do I need to use a payroll company to pay myself my reasonable salary wages? Or could I do payroll myself?
    1a. Could I pay myself once a month? instead of more typical biweekly or bimonthly schedule. Does it make sense to pay myself the same salary per month? vs. an hourly wage
      even though I will be charging clients an hourly wage?
2) would I NEED to pay myself through a shareholder distribution? is this just another name for an "owner draw."
      2a. How often must one take a shareholder distribution? could I also set this up monthly or does quarterly make more sense
3) my understanding is I must file quarterly taxes?
4) is this the best structure to set up a solo 401k- and can I wait until after calculating my 4th quarter taxes to determine the "employer" contribution
5) could I set up a dependant care FSA through this type of structure?
6) Will I need book keeping software? and do you have any recommendations? quickbooks vs freshbooks?
7) I should use the same CPA for our family and business taxes- yes? since as a pass thru my spouses income will impact my business taxes?

Thank you for all your thoughts!


SeattleCPA

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Re: New business in 2018- many questions
« Reply #1 on: December 20, 2017, 04:45:19 PM »
So I love S corporations. I have a website where all I do is talk about and promote S corporations and sell do-it-yourself kits for forming an S corporation.

In other words, I am "all in" on the S corporation thing...

But I don't think you want to rush into the S corporation thing. You'll need to call a lot of your profit "wages"... and that'll mean you avoid very little FICA on the leftover "non-wages"...probably barely enough to pay for the extra costs of operating as an S corporation and maybe not enough to justify the hassle factor.

P.S. You may want to look at operating as an LLC...but just let the LLC be treated for tax purposes as a sole proprietorship.
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MEJG

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Re: New business in 2018- many questions
« Reply #2 on: December 21, 2017, 04:26:23 AM »
SeattleCPA,

I find your posts very informative! so I value you opinion.  At what point do you feel it makes sense to transition from an LLC to an S corporation?  I had the impression it was around the $100,000 gross/year mark?  What are your bench marks?

Thank you!

CareCPA

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Re: New business in 2018- many questions
« Reply #3 on: December 21, 2017, 09:00:26 AM »
I'm not going to speak for Seattle, but I think for a lot of practitioners those benchmarks are moving. With the new passthrough deduction, it makes the math a little different going forward.
Always happy to help with tax or accounting questions - feel free to private message me or check out CareCPA.com

I am a licensed CPA in Pennsylvania. However, any tax advice I give should be considered general information and not used in the avoidance of tax. There is most likely information about your situation that I do not know, and thus you should do your own additional research.

Proud Foot

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Re: New business in 2018- many questions
« Reply #4 on: December 21, 2017, 12:16:44 PM »
Here are my questions

1) Do I need to use a payroll company to pay myself my reasonable salary wages? Or could I do payroll myself?
    1a. Could I pay myself once a month? instead of more typical biweekly or bimonthly schedule. Does it make sense to pay myself the same salary per month? vs. an hourly wage
      even though I will be charging clients an hourly wage?
2) would I NEED to pay myself through a shareholder distribution? is this just another name for an "owner draw."
      2a. How often must one take a shareholder distribution? could I also set this up monthly or does quarterly make more sense
3) my understanding is I must file quarterly taxes?
4) is this the best structure to set up a solo 401k- and can I wait until after calculating my 4th quarter taxes to determine the "employer" contribution
5) could I set up a dependant care FSA through this type of structure?
6) Will I need book keeping software? and do you have any recommendations? quickbooks vs freshbooks?
7) I should use the same CPA for our family and business taxes- yes? since as a pass thru my spouses income will impact my business taxes?

Thank you for all your thoughts!

I don't know all your questions but here are some thoughts.
1) No need to do a payroll until you make the S-Corp election. Once you do make the S-corp election I don't see why you couldn't do it yourself and have your CPA handle all the filings for you. As far as 1a I would suggest to "pay" yourself at whatever schedule would be most convenient for your family purposes as long as you keep it consistent. 
7) You don't have to but using the same CPA for family and business would most likely have lower overall expenses as well as the benefit of the CPA knowing your full tax picture.

Like SeattleCPA said, you should probably wait on the S-Corp election. Since it is a service profession and if you are the only one providing the services an S-Corp might not even be beneficial as you are required to pay yourself a "reasonable salary". When it would be beneficial would depend upon the services. Definitely listen to what SeattleCPA says as their posts, not only here but on their blog, always contain top notch information.