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LLC? S-corp? C-corp? DBA? Help, I'm so confused!

Discussion in 'Anything goes' started by bydesign77, Jun 30, 2010.

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  1. bydesign77

    bydesign77 Active Member

    So, I've decided to get back into the arena of officiating. I know it sucked when I did it before and had to claim that money (untaxed) on my income return the following year.

    On top of that, I've started to do some mystery shopping, you know, go check out a store and they pay you to spy on their employees. Anyway, that's going to add to the income as well, and I want to avoid being too penalized come tax season.

    I started thinking that I could incorporate myself and have the companies and the officials' associations pay my company, from which I could pay myself. Also, I could use the company to secure financing for things that I don't need personally, but to do my "jobs," and not have to worry about that affecting my credit.

    I figured with all the freelancing that's going on out there, maybe someone would have some insight on what to do.

    Thanks for your help!

    bd77
     
    bydesign77, Jun 30, 2010
    #1
  2. jackfinarelli

    jackfinarelli Well-Known Member

    If you form your own company - - forget the kind of company for the moment - - you will give yourself a few benefits and create extra work for yourself.

    Some of the extra work will include company/corporate tax returns for state and Feds quarterly and then annually. Add to this forms for W-2s and W-3s and Federal Unemployment Taxes and you - - or someone you pay - - will have work to do. Therefore, are you going to earn enough money in these "outside jobs" to make all that worthwhile?

    The nice thing is that you can have the company provide you with some benefits out of its revenues. In doing that, you don't pay tax on the value of the benefits but you can claim the costs as a business expense. Translation: the Feds and state governments partially fund some of your benefits.

    My wife and I formed and operated a Subchapter S Corp for about 7 years doing some consulting and other "stuff". Our annual revenues were in the range of $30K most of the time except for one year when they spiked to about $60K. At that level of revenue, it seemed worth the work to get some of the tax sheltered bennies. If the revenue levels had been in the $10K range, it probably would not have been worth the hassle.


    Hope that helps.
     
    jackfinarelli, Jun 30, 2010
    #2
  3. slappy4428

    slappy4428 Active Member

    I want to know more about the mystery shopping and if its worth my while....
    I wish to subscribe to your newsletter
     
    slappy4428, Jul 1, 2010
    #3
  4. Buck

    Buck Well-Known Member

    You're creating more hassle that way than if you handle it as self-employed.
    Figure out what you expect to make in additional income. Be conservative.
    Provided the additional income is decent, get a good CPA.
    If there's not enough additional income to justify the CPA, learn to track your additional income better and file quarterly. That's less hassle than incorporating.
    However, if your not the type whose good about it, a CPA is the way to go. I had multiple income streams a few years ago and tried to do it myself. Not good. Just paid off the IRS this week and still owe a little to the state. I would have owed a lot more, though, if I hadn't realized that I screwed it up and hired a CPA after the fact. She helped immensely.
     
    Buck, Jul 1, 2010
    #4
  5. Pilot

    Pilot Well-Known Member

    I always thought the mystery shopping was some sort of scam. It's not, though, huh?
     
    Pilot, Jul 1, 2010
    #5
  6. jackfinarelli

    jackfinarelli Well-Known Member


    Mystery shopping is not a scam. Many "cash-based businesses" use mystery shopping as part of their security umbrella; other companies use mystery shopping as a quality-of-service measure. However, I doubt that anyone ever has - or ever will - get rich doing mystery shopping.
     
    jackfinarelli, Jul 1, 2010
    #6
  7. finishthehat

    finishthehat Active Member

    Be warned, though -- there are mystery-shopper scams out there. Our state's consumer protection office sends out periodic press releases on them. Mostly has to do with the company getting your financial info in some way, though, or getting cash from you that is supposed to be refunded and never is.

    There are, of course, valid and non-scam mystery-shopping outfits, too.
     
    finishthehat, Jul 1, 2010
    #7
  8. Buck

    Buck Well-Known Member

    Can a person be a mystery shopper who specializes in bars and porn shops?
     
    Buck, Jul 1, 2010
    #8
  9. mustangj17

    mustangj17 Active Member

    I was thinking the same thing.
     
    mustangj17, Jul 1, 2010
    #9
  10. The Big Ragu

    The Big Ragu Moderator Staff Member

    ByDesign, I am a 100 percent shareholder in an S. Corp., which is cool because it saves me a ton on payroll taxes. I am not sure how it can work in your case, and I'd consult an accountant, because Congress passed a law this year restricting the types of professionals who can incorporate as S Corps. -- the gist was that it kind of needs to be a real business. You can't be a professional offering a service who would normally work as an independent contractor, and incorporate to save on taxes.

    But for my business an S. Corp. made great sense. The IRS simply requires that I pay myself a competitive industry salary, which is really arbitrary, but you have to make it reasonable enough so you don't get flagged -- and I have an accountant for that. My business has to pay all of the Social Security and Medicare taxes on my salary, which is the equivalent of the self-employment tax a freelancer or independent contractor pays. However, anything beyond my salary that the business earns in profit gets paid out to me (as the lone shareholder in the business) as a distribution. That money either doesn't get taxed or gets taxed at the much lower capital gains rate. So it saves me a ton on taxes.

    As far as filing, it is more complicated than what most people are used to. There is a corporate income tax return for Federal, state and city where I am, but the flow through of income gets reported on my individual tax return (so you avoid double corporate and personal taxation) and I just get assessed taxes at my individual income tax rate.

    One benefit of being incorporated, since my business is publishing related is that my personal liability is limited. If I was a sole proprietor running this business in an unincorporated way, I'd have unlimited personal risk -- say I get sued for infringement or libel of some sort.

    If you elect to become an S Corp., you first have to form your corporation in your state and there are certain rules and paperwork you need to take care of. Some are kind of funny. For example, you are supposed to actually have an annual meeting every year and keep minutes. Since I am the only shareholder, it's kind of a silly requirement. You also will need to apply for a Employer Identification Number, or EIN, which is the corporation equivalent of a SS number. Once you are established as a general corporation, you can then apply to elect to be an S Corp. You just have to stay on top of a few things in order to get approved and get it all set up.

    That is why a lot of people form Limited Liability Corporations (LLCs) instead. They are easier to set up and you still get the same limited personal liability. You don't have a lot of the corporate rules, like the annual meeting.

    For my business, a corporation made more sense, but an LLC works better for some types of businesses. For example, if you don't want to distribute dividends evenly, you should choose an LLC. With an S. Corp., any distributions must be made according to the number of shares each person owns. With an LLC you can distribute them any way you want. Since I am the only owner of my business that isn't an issue. The other biggie for me was that with a corporation, you can keep profits within the company or pay dividends -- you are free to do whatever you want with whatever profit is left over after you pay yourself your salary. With LLCs (and an accountant could correct me on this if I am wrong, because I haven't looked at it in years), the deal breaker for me me was that all profits have to be taken each year and depending on several factors you can be on the hook for social security and medicare taxes on the entire profit. Since saving on taxes was the object in the first place, it's why I went for incorporation instead of an LLC-- where I could take a set salary, take the rest in dividends and avoid payroll taxes.
     
    The Big Ragu, Jul 1, 2010
    #10
  11. MacDaddy

    MacDaddy Active Member

    If my wife doesn't know I'm going there, does that count?
     
    MacDaddy, Jul 1, 2010
    #11
  12. Buck

    Buck Well-Known Member

    Secret pervert, secret drunk: The life of MacDaddy
     
    Buck, Jul 1, 2010
    #12
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