Individual or Sole Proprietor

[Phillip Arnn]

gquote=TXINSURANCE;128869]
"One other point - some carriers (PM me for specifics) will NOT pay if YOU die. They will however pay the company if you personally die.

So you could lose your whole book upon death if not producing as a company. "

TX - this is a very sobering piece of information and deserves a lot of consideration. For the young it may not be a huge consideration ("'ll live forever" but for me (bad heart - defib implant) this is sobering. I will get in touch for some details.

 

[somarco]

I have a C corp. Commissions are paid direct to my corporation via my business bank account.

I don't have a single carrier who has a problem paying to my corporation.

 

[bluemarlin08]

C corp is the way i ride. Have substantial group health that will continue to pay to my corp, very big deal if you have large renewals.

 

[MikeLevy]

I'm a little rusty about this stuff. Its been years since I was a tax accountant and I am not a lawyer so please don't take this as advice.

If I recall correctly, the S-corp is the best way to go if you want the legal protection of a corporation while preserving the tax benefits of a pass-through.

You will have to file Sub-S return each year which will also include a K-1 for use in preparation with your individual return but you will probably be under the limit so you don't have to match the balance sheet to the income statement on the return.This makes the return much easier and less expensive. This will eliminate the need for a schedule C although you may want to also have a schedule C sole proprietorship as well as the S-corp for any company that has a problem paying commissions to a corp. The schedule C is easy and there is nothing that says you can't have both.

 

[arnguy]

For someone just starting out, sole proprietor usually is the way to go because of simplicity. It should be noted that there may be instances where taxpayer could have no tax liability while still having to pay a SE tax.

When I was with the IRS (Collection Division) we would have some taxpayers who ended up with a zero IT liability, but they still had a SE tax liability that was due. They felt it was not necessary to pay this since it was not the IT. Of course, that defense did not work when the Revenue Officer went after them to collect it. That plea fell on deaf ears since the SE liability is a tax assessment that must be paid. The next step for the RO was a levy on the TP's bank account.

 

[Phillip Arnn]

Can one of you explain the difference between the c-corp and the s-corp.

Mike talks about "pass through" and Arnguy talks about SE tax. It would be helpful to newbies if y'all could use the full word since some of us are not familiar with all the abbreviations yet. Thanks

 

[arnguy]

Can one of you explain the difference between the c-corp and the s-corp.

Mike talks about "pass through" and Arnguy talks about SE tax. It would be helpful to newbies if y'all could use the full word since some of us are not familiar with all the abbreviations yet. Thanks

Phil, it would take a lot of space to get into the difference between the C Corporation and the S Corporation. I direct your attention to this website:
www.themoneyalert,com/Corp-Entity-Table.html

There is an excellent matrix on that site that compares
Sole Proprietorship vs. C Corporation vs. S Corporation
vs. LLC (Limited Liability Company).

The reference to SE = Self Employment Tax.

From a taxation point of view, the S Corporation and the LLC are both "pass through" entities inasmuch as the tax liability is not the liability of the entity but rather the liability of the individuals (shareholders in an S Corp and members in a LLC).

 

[SportsNut]

Can one of you explain the difference between the c-corp and the s-corp.

Mike talks about "pass through" and Arnguy talks about SE tax. It would be helpful to newbies if y'all could use the full word since some of us are not familiar with all the abbreviations yet. Thanks

An S Corp, is a properly formed Corp that chooses to be taxed under Subchapter S, so it an election by the shareholders. What this does is pass through all profits and losses to the shareholders, and there is no corp income tax. An S Corp does afile a seperate tax return, Form 1120S, and those profits or losses are reported to the shareholders on form K-1, and each shareholders reports that on their personal 1040. This is true whether one leaves undisributed funds in the corp or not. The advanatages of Sub S election have been identified earlier in this post; potential savings on SE tax.

A C Corp is a corp that has made no election. All corps are C corps when formed. There can be a benefit to using a C Corp, such as certain deductions for employee benefits, life insurance, medical reimbursement plans, etc. that may not be deductible under an S Corp. A corp could have a very good year, producing high profits, and if those funds aren't distributed with a C Corp, then the corp pays taxes on the retained funds, at theoretically a lower rate than pers income tax rates... although that may not be true with lower marginal rates today. The problem is with this is that eventually, when you distribute the funds from the corp, it then taxed again as personal income. Many refer to this as double taxation of a C Corp.

The method that I like for a very high earner is to use both, one S and one C corp. The S corp receives the lions share of the income and th C Corp receives an amount of income equal to the benefits that the shareholders wish to fund that are uniquely deductible to a C corp. Or the S corp could actually pay the C corp a mgmt fee, equal to the anticipated costs of the benefits the C Corp is going to furnish. Therefore the C corp really never has a profit at year end, and no tax bill to pay. The profits remaining in the S Corp are pass through and avoid double taxation. This is what is often called, having your cake and eating it too.

 

[Phillip Arnn]

This is great infomation for the business side.
I am in Texas and I know there is no pat answer, but does it cost $$$thousands to set up a corp like the above mentioned?
Thanks to you both for your time an insight.

 

[somarco]

does it cost $$ to set up a corp

Only if you are a sucker.

You can probably still incorporate for less than $300. I haven't checked to see but seems like it was less than $100 for me in 1993.