Taxes and being 1099

*midwestbroker* · 02-22-2008, 11:07 PM

Now that I am back to 1099 status, I was wondering what to do...

I am looking to do either a LLC or a S corp.

My reason would be to lower my possible taxes for next season. I was told by a friend who is a CPA (she does corp audits) that it would lower my taxes. I am going to talk to my tax man to see what he thinks.

I am looking at legalzoom.com to do all this. It will cost from 139-369 + state fees depending on what package I pick.

How have you structured yourselves?

michellea · 02-22-2008, 11:38 PM

I am trying to figure out the best way for me as well. I have decided after all research that I just need to hire someone. I was originally thinking of an LLC, but since it is my fiance and I (we will be married in October) we need to do something else, since we both would have the SE tax due that way.

I did talk to another agent the other day and he has a S Corp. Now mind you this guy regularly sells between 50 and 60 advantage plans a month and he dabbles in selling real estate. He said that was the best for his taxes. He referred me to his accountant, but I think I will pass on that since I probably could not afford the consultation.

padthaiforlunch · 02-23-2008, 03:26 AM

SE tax is what you get with llc taxation. The benes of an s-corp include not taking your all of you income as wages. So let's say you make $80k /yr. Instead of paying the 15.3% fica and medicare on all of it, you take a salary of $40k - have 7.65% withheld, along with fed and state withholding, and the s-corp matches the 7.65 as an expense.

The other $40k pass through without any fica or medicare. In this sample you have tax savings of about $6k.

That said, you will have quarterly tax filings with the state/fed; you will need to pay unemployment on yourself, and you will have to file a corp. tax return. All told, the additional costs will run $900-$1500/yr. Any more than that and your overpaying your accountant.

You should be earning at least $40k/yr. before you consider a s-corp. Below that and the tax savings wash out next to the added paperwork and costs.

An llc can elect s-corp taxation. You can likely set up an llc or corp. online with your home state. No need to pay more than filing fees. Don't fall for buying corporate books and articles if you are a one man shop. I haven't looked at the packages form legalzoom, but I see no reason to spend the extra money when you can do the filing yourself.

If you want to elect s-corp tax treatment, go to the irs website and get form 2553. Just fill out the first page. You can elect that the tax treatment be retroactive to Jan 1. if you get the form in by March 15.

Don't forget to get an EIN first!

*midwestbroker* · 02-23-2008, 12:58 PM

I am going to talk to anther agent who has an S Corp and see how he set it up. Legalzoom has a basic set up for 139.00. EIN numbers for 79.00.

However, the IRS does it over the internet here...

Apply for an EIN (Employer Identification Number) Online

Thanks for your help!

healthagent · 02-23-2008, 01:18 PM

I sat down with an accountant over 2 years ago and he ran all the numbers - said I'd save nothing after all the dust settled by going S-corp.

Yes, with an S-corp you can pay yourself a wage and the rest goes into the corp account. Problem is you can't take the money out of the corp account - except for biz expenses since when you do it's taxed as income.

moonlightandmargaritas · 02-23-2008, 01:32 PM

Originally Posted by healthagent

Yes, with an S-corp you can pay yourself a wage and the rest goes into the corp account. Problem is you can't take the money out of the corp account - except for biz expenses since when you do it's taxed as income.

Not exactly correct.

You pay taxes on it anyway. "S" corp "profits" are passed through to you to pay tax on. No SS though...

In addition, there are many legitimate expenses that can be "run through your business..."

healthagent · 02-23-2008, 01:42 PM

Paul - I don't recognize your avatar

moonlightandmargaritas · 02-23-2008, 01:48 PM

I am continuing my series featuring "favorite sons & daughters" of our fair city, "Tampa - Cigar Capitol of the World".

These noted locals are lovingly referred to as "Tampons".

It is Tony LaRussa, Tampa native and manager of the St Louis Cardinals. That's his mugshot after a DUI arrest last Spring in Palm Beach County...

Last was Hulk Hogan. Next is ????

CHUMPS FROM OXFORD · 02-23-2008, 02:48 PM

moonlightandmargaritas · 02-23-2008, 03:02 PM

Reminds me of Kid 'N Play?

arnguy · 02-23-2008, 03:06 PM

Geez, Paul, I thought that was your mug shot! I thought you are very photogenic.

retread · 02-23-2008, 05:00 PM

Originally Posted by healthagent

I sat down with an accountant over 2 years ago and he ran all the numbers - said I'd save nothing after all the dust settled by going S-corp.

Yes, with an S-corp you can pay yourself a wage and the rest goes into the corp account. Problem is you can't take the money out of the corp account - except for biz expenses since when you do it's taxed as income.

I formed an S-corp back in the 70's. Poor decision. Company is now dead, and good riddance! Quite a bit of regulations for no or little advantage. Would not recommend it to anyone.

I think LLC is the way to go if you are in the bucks. Newbies in the business will be better off as sole proprietor until then.

padthaiforlunch · 02-23-2008, 07:48 PM

Think of S-corp as a tax treatment. If you are unhappy with the s-corp treatment, you may unelect it. However, once you unelect you must wait five years to switch back. Your two basic structures (not including partnerships) are:

Sole Proprietor, or single member llc. (IRS treats llc as sole prop for tax purposes)
Use schedule C. You pay SS on first $102,000 and Medicare tax on all income. As a sole prop you are responsible for 15.3% ss and medicare. Expect to pay employment taxes and income taxes on all income.

C Corp.
File form 1120. The corporation pays you a salary. Up to $102,000 you will pay 7.65% ss and medicare. The corp will match it and write off its portion as a payroll expense. Any profit the corp has after business expenses and paying you is subject to corp taxes - 15% on the first $50k. If you take dividends, you will pay capital gains rate, thus the concept of double taxation.

S-Corp. (may be used for llc or corp)
File for 1120S. Similar to C corp, except you are taxed as though all profits were taken from the corp. Typically no corp tax. Divedend (called distribution) is taxed at your income tax rate.

Advantage of s-corp over sole prop: As long as you take reasonable salary, you can avoid employment taxes on a portion of income.

Advantage of s-corp over C corp: No double taxation on distribution.

Advantage of C corp over s-corp: When you are throwing off so much cash you can leave it in the corp and let the corp (which has a lower tax bracket than you) make investments.

Advantage of llc over corp: less paperwork for a struggling business. Easier to shut down.

TXINSURANCE · 02-23-2008, 10:32 PM

Everyone is talking taxes and not talking about one of the biggest reasons to form a company - "PROTECTION OF PERSONAL ASSETS". In the Insurance business I think operating sole or "S corp" is entirely too much liability (my opinion). You think your E&O policy will save the day? Think again, remember E&O is an insurance policy (and we all know that game...).

There are other things to consider as well - if you want your LLC or INC to be paid commissions you will need to get it LICENSED in every state you operate. Depending on the state this can be FREE to several thousand dollars since you need to get the company APPOINTED as well.

There is a lot to consider, but at the end of the day I will take PROTECTION over tax consequences any day. Fortunately I live in Texas so my House, Cars (up to two), One Horse, Two Donkeys, Two Chickens, And A Cow are all protected under Homested laws even if I was not a company - but I still don't chance it.

al3 · 02-23-2008, 11:18 PM

Originally Posted by TXINSURANCE

Everyone is talking taxes and not talking about one of the biggest reasons to form a company - "PROTECTION OF PERSONAL ASSETS".

Don't you have Pre-Paid Legal?

If you have PPL.... "you got people!"

Al

retread · 02-24-2008, 07:24 PM

Originally Posted by al3

If you have PPL.... "you got people!"
Al

I got ppl. You got ppl?

Hey, y'know what? Everybody needs ppl!

*midwestbroker* · 02-26-2008, 08:20 AM

Oh yea...If I do pre-paid legal they can send a letter to the IRS to leave me alone.

I think I will just go that route.

I am leaning to LLC for tax and protection and what ever other benefits come my way. I am still getting my tax info ready and then off to see my tax guru.

Thanks for your help.

SJinaki · 04-01-2008, 04:00 PM

What advice would you have for someone new in the field? I am approved with Farmers.

Thank you!
Shani

TXINSURANCE · 04-02-2008, 02:10 AM

Most agents started as sole proprietor until they made some change, then they formed LLC or INC. I do not know a lot of agents that started with LLC or other unless they bought into a franchise type scenario.

You will have to get all state licenses and re do your appointments with a company being licensed, it is a pain - years later we are still sorting out the mess, but it had to be done in my opinion.

rdavis85 · 04-02-2008, 08:45 AM

Setting up an LLC is a simple process. I have set up 3 now without ever having a problem. In Michigan you can go to the state site and download the form. An LLC as a single person passes thru as though it were a sole proprietorship. So no real tax advantage.