Poll

Do you have an LLC?

Yes, I have one or more LLCs
3 (37.5%)
No, I don't have any LLCs and am not planning on doing so
1 (12.5%)
No, I don't have one, but I may set one up at some point
4 (50%)

Total Members Voted: 8

Voting closed: May 06, 2012, 08:59:31 AM

Author Topic: Incorporating  (Read 4312 times)

sol

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Incorporating
« on: March 06, 2012, 09:48:37 PM »
Has anyone here formed a private corporation or LLC to assist in their path to early retirement?

The more I read about it, the more I see significant tax advantages to having a business on the side, even if the profit/loss it generates is completely inconsequential.

Mike Key

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Re: Incorporating
« Reply #1 on: March 07, 2012, 05:00:44 AM »
Yes/No

I have two LLC's for business, I didn't initially set them up as part of my path to early retirement, but they sure do help and the more I learn, the more I see the benefits. I plan on using LLC's when I get into rental properties.

And you're right about on the side, I've managed to successfully write off enough each year to not owe taxes. Although that might be changing as I have moved to a new state..... ??

But things like our cell phone and internet are paid out of my business thus allowing me to deduct the entire costs of those services. A portion of our home that is used as my house along with utilities based on sq ft and % is also a write off.

I'm not a tax expert, I have someone who handles that for me, but talk to one. The tax system in this country is designed for businesses, not employee's which is why so many employed people get ticked off at the tax system.

arebelspy

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Re: Incorporating
« Reply #2 on: March 07, 2012, 07:58:31 AM »
Added poll, hope you don't mind. :)

Personally I have two LLCs for my rental properties, for tax and liability reasons.

I do know I need to learn more, because I'm sure there's a lot more I could take advantage of that I'm not yet.
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Midwest

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Re: Incorporating
« Reply #3 on: March 07, 2012, 08:16:19 AM »
I have a business on the side, but have not formed an LLC for it.  Due to the type of business I have (professional services) and the small size at this time, the cost benefit of forming an LLC isn't appropriate at this time for me.

Contrary to what some promoters would have you believe, forming a corp or LLC doesn't magically turn ordinary expenses into deductions.  LLC's/Corps are useful tools and I advise clients to form them in many cases, but forming a business and deducting expenses doesn't require a corp or LLC.

The expenses described by Mike above are all available without an LLC, but do require a business.  Having a business on the side does allow me to make largely tax free income from the side business due to the deductions against the income.

Mike Key

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Re: Incorporating
« Reply #4 on: March 07, 2012, 12:12:02 PM »
Contrary to what some promoters would have you believe, forming a corp or LLC doesn't magically turn ordinary expenses into deductions.  LLC's/Corps are useful tools and I advise clients to form them in many cases, but forming a business and deducting expenses doesn't require a corp or LLC.

The expenses described by Mike above are all available without an LLC, but do require a business.  Having a business on the side does allow me to make largely tax free income from the side business due to the deductions against the income.

The examples I listed are available to sole proprietorship's, that is true.

However, LLC's aren't that expensive and are generally considered the least expensive to form and keep up. However that is state to state and person to person in determination of cost.


My businesses are both service industry related, not real estate. I still prefer LLC for the amount of income I bring in. But these are my primary sources of income, not a side gig.

And LLC's are usually pass-thru when it comes to taxes, however you can elect members and managers and make yourself a manager and then deduct your salary from income if you elect someone else to be a member, like your spouse.

You can opt to be treated like a CORP via IRS Form 8832. After electing corporate tax status, an LLC may further elect to be treated as a regular C corporation or as an S corporation.

Personally I have elected my LLC to be taxed as an S-corporation which I feel has the best possible small business structure for taxes. It combines the simplicity and flexibility of an LLC with the tax benefits of an S-corporation which amount self-employment tax savings.



« Last Edit: March 07, 2012, 12:13:39 PM by Mike Key »

Midwest

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Re: Incorporating
« Reply #5 on: March 07, 2012, 12:25:26 PM »
Mike  -  I wasn't referring to you when mentioning promotors.  Many financial "guru's" promote corp's as a magical device that turns personal expenses in to business.  That is simply not the case. 

You are correct, LLC's taxes as S-Corps are useful in minimizing self employment tax.  There are, however, expenses involved in operating as an S-Corp.  In addition, S-corps typically aren't advisable for holding real estate or for businesses starting up and losing money.  It's another tax return to prepare and the owner should be receiving a reasonable salary to avoid IRS scrutiny. 

As a professional, my job is to help clients make an intelligent decision on structure.  The complexity adds to my fees so its important that the additional complexity is a win for the client and not just for me.

As with any thing else, its a cost/benefit decision.

Midwest
« Last Edit: March 07, 2012, 12:29:58 PM by Midwest »