Posted on 02/22/2016 9:32:52 AM PST by Alberta's Child
Awesome story. Thank you!
New York is even more stringent. You cannot be a partner in a New York engineering fir unless you are a licensed engineer in New York. So any major company in this industry that has partners that include accountants, marketing people, architects, etc. must set up a separate subsidiary with only New York engineers listed as the owners.
How is an LLC treated under the Federal tax code?
Yep. I was thinking of the liability of the idiots I see behind the wheel and ambulance chasers.
I will look into that option. It might be a good one since my currently employer might immediately become by biggest client.
Lol. Thanks for the warning.
Excellent post. Thank you!
As either a Sole Proprietor or Partnership, and revenue and costs go on your personal return, unless you decide to file a corporate return. Your choice. S and C corps must file a separate corporate return. So, an LLC is much easier when starting out.
Hubby had a single person LLC in Michigan for about 6 years. I would seriously look at that and if you have “partners” treat them as subcontractors and just give them a 1099. Tax wise it is the best way to go, all expenses, especially home office come off on a schedule C and then that is just filed with your 1040. Same individual tax rate, no corporate taxes. We used Turbo Tax Home and Business to get the schedule C. There was a low (100.00??)fee to set up the LLC with the state and you needed operating guidelines - generic ones available in the internet. Not all states allow a single person LLC but the ones that do have to have all the support help. We did not use a lawyer. Good luck!
1. In previous life with a smaller company I once recommended that we should do X for its tax advantages. The company owners were doing Y, on the advice of the company's accountant. They brought me into a meeting with the accountant to make my case. The accountant heard me out, then said, "You're right. That would be better from a tax standpoint. But it would require a lot of bookkeeping to make sure you've got all the documentation in order." ... to who I responded, "I already keep all of the company's records that way, anyway." ... at which point he looked at me bug-eyed and said, "You're the first person I've ever met who keeps records like that and isn't even an accountant -- and most of the CPAs I know aren't even methodical and disciplined enough to do that!"
2. My corporate marketing leadership will not allow their staff in my office to send out proposals without my review. The conventional wisdom here is that all marketing materials must be reviewed by senior marketing people -- or me.
After reading the replies you received thus far, I think you’re on the right track.
Your legal structure is less important than your ability to sell and retain your customers.
Proactively pushing your services to those that need you is substantially different than people coming to you for your expertise.
Make sure you have solid contracts that are well defined and not overly complex.
If your customers are coming to you, you can set the rules etc..
If you are pushing out your services, you may be tempted to accommodate scenarios that are outside of your skill set.
Know your Customer.
Stick to your knitting.
Take the high road.
And know HOW and WHEN you are going to be Paid !!!!
Best of luck.
Talk to your lawyer and accountant. What liability do you think the LLC will protect you from? If it’s just going to be you, anything you do to create liability is going to be on you personally as well as on the entity. Now, if there are going to be several folks doing the consulting, the LLC might help to protect you personally from their wrongful acts.
And if it is an LLC, it won’t be a sole proprietorship. And vice versa.
You might explore with your professionals whether it would make more sense to insure for liability, and structure for tax minimization.
Last time I went down that road - several decades ago, the rule of thumb was half your gross went to taxes (probably higher in NJ) and the balance went to overhead.
I may have a good path for a transition by retaining my current employer as a client. This might count as the “day job” you recommend.
A limited liability company is technically not a corporation, although it should provide the same level of protection against personal liability as a corporation. For Federal tax liability, the IRS treats an LLC as a partnership.
2. I have a small number of potential partners who are not able to make this leap right now for a number of reasons (risk tolerance, other commitments, family matters, etc.). If I set this up as a sole proprietorship, would I be able to convert it to a partnership without closing down the LLC and starting another one?
I think you are a bit confused as to the difference between and LLC, partnership, and sole proprietorship. An LLC can have one "member" or many members, and members can be added and removed almost at will as long as the process that is used to do so follows the law, articles oF organizations, and membership agreement (if any).
3. Are there any unique challenges with establishing an LLC in one state and conducting business in another? I'm thinking particularly of maintaining the liability protection in State B if I am domiciled in State A.
Generally, there are no issues, except that most state laws require a "foreign" LLC to register in the state where it is conducting business. In other words, if you set up an LLC under New Jersey law, but open shop in New York, then you would have to register the LLC with the New York Secretary of State as a foreign LLC. Really not a big deal.
4. Are there any special risks or financial considerations if I start this venture as a home-based business? I have already done research on this through my local zoning code, but I have a number of clients who would be great points of contact for short-term or temporary office space with shared administrative staff and meeting space, if necessary. I just don't want to make any commitments until I have some contracts established for short-term revenue.
You will need to look at both your local zoning code and planning code, because even if you are zoned for a home business, you may need planning board approval for things like parking, ingress/egress, signage, etc. Speak with your insurance agent because your homeowner's policy may not cover commercial activity and even worse, the conduct of a commercial business in a residential property may negate the residential coverage. Speak to your CPA re: tax deductions for home businesses. My understanding is that deducting home business expenses will significantly increases the chances of an audit.
5. Any other thoughts, ideas, or advice related to the start-up process before I get the lawyer/CPA involved?
Speak with the CPA before you speak with a lawyer, because one of the first bits of information the lawyer will want to know before advising you as to the type of business entity you should set up, is what the CPA has advised with respect to your particular tax needs.
PLEASE NOTE THAT I AM NOT GIVING YOU LEGAL OR ACCOUNTING ADVICE; RATHER i AM SIMPLY PASSING ALONG INFORMATION FROM MY OWN EXPERIENCES.
Do not ever partner with anyone.
The idea of a partnership is to get 50% of the reward by doing less than 50% of the work.
No matter the money. DO NOT PARTNER.
Understood. That’s what I meant when I said an LLC has no status under federal tax law. An LLC under state law has to have a separate Federal designation for tax purposes, right?
Great advice. Thank you!
let me know if you need help with office space. I represent tenants to find space and negotiate the best terms possible.
Yes, but were you the FACE of the business?
I began my business after getting fired from the dealer I was working for/at. I was immensely fortunate that he paid for a ton of sales training for me, because I was strictly from the engineering side. And while I knew more than almost any of my sales cohorts, it took me 6 months to sell my first $125 cable against a nominal sales goal of $100K/mo. I lacked the people skills. That may not apply to you. But it is a “thing” you have to do and my caution is the idea that you can do the efficient managerial job while also being the shmoozer. You have to do both. People who shmoozed better than I outsold me 2:1 even after I got my legs. When I left, I was able to snake away some clients who appreciated my sorceror-like ability to keep them running and I knew techs I could call scattered all over LA who could get to stuff fast, if I could not fix something myself. Or knew someone who would let me borrow a piece of gear as a loaner. This was fairly complicated video gear back in the 80’s and I could be super aggressive about getting stuff up and running, and some people appreciated it for many years.
Thank you — great information! The specialist I will be dealing with on this is actually a lawyer AND a CPA.
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