Individual or Sole Proprietor

[Phillip Arnn]

I think it was John P. who recommended starting a business for your insurance sales. Is it ok to sale insurance as an individual or do I need to file a dba for a tax number? Are there advantages to being a sole proprietor? How many of you guys have set a up business entity?

 

[patch36]

A sole prop can have a dba registered with the state, at least in the states I have had businesses in. An individual is a sole proprietor.

Maybe you are thinking LLC ?

 

[Crabcake Johnny]

You can be a sole prop and just use your social as your tax ID. If you want an agency name you need to register it with the DOI and likely with your state.

In MD if you're using a DBA you need this:

SDAT: Forms & Applications

 

[Josh]

I think it was John P. who recommended starting a business for your insurance sales. Is it ok to sale insurance as an individual or do I need to file a dba for a tax number? Are there advantages to being a sole proprietor? How many of you guys have set a up business entity?

You can totally just sell as an individual. Getting a DBA just allows you to have an agency name. If you wanna sell insurance as James Gilbert (or whatever your name is) you're good to go. If you want to sell insurance as The Gilbert Agency or Amazing Insurance Agency or something like that, you need to file a DBA.

 

[moonlightandmargaritas]

I think most agents/brokers, especially newer ones, spend way too much valuable time sweating this stuff.

If you don't find enough new clients and first year commissions, it's all going to be moot anyway. You' be well organized with the correct business form, but you'll be broke. Keep the horse in front of the cart!

After getting to about $75K in net revenues, it makes sense to look at a sub-chapter s corp - as a tax play.

Until you get there though, don't worry about it. Use the energy and resources to build clients.

 

[CPACINS]

What if you have agents under you? Is it still wise to have your contracts under your individual name or in a corp?

 

[SportsNut]

The advantage of writing biz in your personal name is simplicity. This is the best approach starting out. Others have mentioned the use of a dba name, which are still sole proprietor operations, just being able to operate under and assumed name... which may look more professional.

Once an agent earns much beyond 50-75K of net income, there may be advantages to consider in forming an entity, from a tax perspective. Net income or net profit is defined as your gross commissions, less deductible expenses for phone, subscription fees, office rent, license fees, lead costs, etc. What remains is your net operating income for business purposes or net profit.

The advantages of forming an entity in other type of business are usually for liability purposes, but for an insurance agent those advantages are lessened... The reason is that if something goes array, you will have participated in the act personally, as the producer, so a corp or LLC vail may not shield you from personal liability, as might be the case of larger multi faceted companies. However, some tax benefits can still be garnered from forming an entity.

The biggest advantage for a self employed person in forming an entity, whether a corp or LLC, is the ability to choose how the entity is taxed. The election of having that entity taxed as a Subchapter S, allows you to pay yourself a fair market salary, say 40K, and all other net compensation or profit above that level can be taken as a dividend, and the advantage being that dividends avoid self employment and medicare taxation... currently 15.3% total.

So lets give an example of Able Agent who is successful and earned in 2008 a net profit of 150K. Simply looking at the self employment taxation, not income taxes, AA would pay 15.3% on his first 102K of comp... that is 12.4% of SE tax and 2.9% of medicare tax, totalling the 15.3%, or $ 15,606 in SE and medicare tax on the first 102K of net income. While the SE tax has a current limit in 08 of 102K cap, medicare tax has NO limit, and is paid to infinity on any amount of earned income... So the remaining 48K of gross profit as a sole prop is now taxed at 2.9%, or $ 1392 of medicare taxes, for a total of $ 16998 of SE and medicare taxes on the 150K of comp.

Now lets compare Able Agent if he/she formed an entity, (Corp or LLC) and elected subchapter S taxation... Taking a salary of 40K, controlled and declared by AA. The salary would be subject to the same 15.3% FICA (fed'l ins comp act), which is the soc security and matching contribution by your employer, your new entity. It just comes out to be the same as SE tax total... but you will see that is only going to be paid on the salary portion of comp... so the 15.3% of the 40K is $ 6120. The balance of the distributions to you from your entity of 110K are a declared dividend... which are subject to FIT (fed'l income tax), but not considered earned income and not subject to SE tax, FICA or medicare taxes, therefore resulting in a tax savings of $ 10,878 to AA.

This is intended only as simple illustration of the benefit of using an entity and potential tax savings, it is not specific tax or legal advice. You should consult your tax advisor before determining if the strategy is viable for your use.

 

[moonlightandmargaritas]

AA would pay 15.3% on his first 102K of comp... that is 12.4% of SE tax and 2.9% of medicare tax, totalling the 15.3%, or $ 15,606

Hey nut, I could be wrong (don't file that way anymore), but isn't there an "adjustment to income" of one half of SE tax if filing as an individual that would make an impact on this calculation?

 

[arnguy]

I think it was John P. Is it ok to sale insurance as an individual or do I need to file a dba for a tax number?

I think it is OK to sell Insurance!

 

[TXINSURANCE]

Individual is a great way to lose your home and all assets.

One of the main reasons all companies exist is to protect personal assets. Maybe in the beginning if there is not much at risk you can afford to take this chance.

Forget about tax, forget about PITA insurance licensing and appointments.

If you have a home, family, and things to protect I would vote that doing business as an individual is out of the question.