small business owners

**RaginCajun** · 07-25-2011, 12:16 PM

i am about to change careers and go into the oil and gas business. i am going work for a firm, where they pay you like a contractor. i will have to take out own taxes and what not. my question is, should i incorporate myself (c-corp/s-corp), LLC, or 1099? i also have 401k, in which just i contribute to it. should i roll this over into my business, or keep it separate? roll it into an IRA? i am new to this and will be looking to get this started asap. thanks!

**gixxerboy1** · 07-25-2011, 12:20 PM

funny you posted this.
I was thinking about this last night. i might have a consultant job that would pay me a 1099. I was starting to do some research today if it was beneficial to open my own business.
Looking forward to responses

**RaginCajun** · 07-25-2011, 12:25 PM

great minds think alike! i have friends in the business and each one does it differently. one has a family, so he does c-corp, i think. another does LLC. it really has my head spinning!

**gixxerboy1** · 07-25-2011, 12:33 PM

i've had 1099 issued to me before. Probably the most i've ever made was 6k from 1099's in a year. So it really wasn't worth it. This would be a significant amount a year.

From what i gather if i was going to do it llc would be the correct option. But not sure yet if there is a real benefit tax wise. Or just benefiting from liability and that isnt a concern to me.

**RaginCajun** · 07-25-2011, 01:24 PM

that is why i made a thread, i have no clue! i am like you, did it before, didn't make enough to be significant. hopefully some experienced business people will chime in and give us some guidance. i am looking into a good CPA, want to sit down with them so they can explain it all. isn't that old man (times roman) a accountant?

**LGM** · 07-25-2011, 01:54 PM

If this is a long term gig with the equivalent of a year's salary or more, go LLC or s corp. Even an LLP will provide protection and coverage from liability. That's really the only reason to do that, other than taxes.

If you have an LLC, you can have them pay the LLC, which in turn you may make monthy "draws" tax free, till the end of the year. Of course, there's the cost of coming up with a name, FEID, etc...

If it's a little short term 10k job, skip it.

**gixxerboy1** · 07-25-2011, 01:58 PM

Originally Posted by LGM

If this is a long term gig with the equivalent of a year's salary or more, go LLC or s corp. Even an LLP will provide protection and coverage from liability. That's really the only reason to do that, other than taxes.

If you have an LLC, you can have them pay the LLC, which in turn you may make monthy "draws" tax free, till the end of the year. Of course, there's the cost of coming up with a name, FEID, etc...

If it's a little short term 10k job, skip it.

can you save money on taxes though by doing it as an llc? I didnt know if i mad in office in my place if things like part of my rent could be deductible.

**jimmyinkedup** · 07-25-2011, 02:56 PM

Originally Posted by gixxerboy1

can you save money on taxes though by doing it as an llc? I didnt know if i mad in office in my place if things like part of my rent could be deductible.

Now I'm no expert on this but my mother has worked for a cpa for the last 25 years. She was advsing my cousin who is a contractor on this very question a few years ago., I recall her telling him it isnt like it used to be - a home office deduction requires a lot more to substantiate nd justify than it used to. Not saying you cant by any means - justr saying hopefully an accountant here can chime in and tell you the requirements to do what you asked here -its not as easy as just incorporating....

**stack_it** · 07-25-2011, 03:52 PM

If you go 1099 make sure you save atleast a 3rd of your income to pay taxes. After right offs you may not owe that much but it's better to be safe. I made the mistake of not saving and I'm still paying for it. I was 1099'd on 97k. Owed around 26k before right offs and got it down to a little over 13k after right off's. I had figured that I would make just as much money the next year and could afford to pay it. Well I barely made half that and with the higher amount of bills I had from making that extra money and living a better lifestyle I was stuck just paying $200 month to the IRS. I switched to being taxed (w-4) a few months into that next year and they've kept my return every year since.

Just remember that contracted jobs usually don't last forever so don't expect that income to always be there. Save, invest, and prepare yourself and you will be better off.

**jimmyinkedup** · 07-25-2011, 05:13 PM

Originally Posted by stack_it

If you go 1099 make sure you save atleast a 3rd of your income to pay taxes. After right offs you may not owe that much but it's better to be safe. I made the mistake of not saving and I'm still paying for it. I was 1099'd on 97k. Owed around 26k before right offs and got it down to a little over 13k after right off's. I had figured that I would make just as much money the next year and could afford to pay it. Well I barely made half that and with the higher amount of bills I had from making that extra money and living a better lifestyle I was stuck just paying $200 month to the IRS. I switched to being taxed (w-4) a few months into that next year and they've kept my return every year since.

Just remember that contracted jobs usually don't last forever so don't expect that income to always be there. Save, invest, and prepare yourself and you will be better off.

Paying Estimated quarterly taxes seems to be the way to go for many in this situation.

**stack_it** · 07-25-2011, 06:24 PM

Originally Posted by jimmyinkedup

Paying Estimated quarterly taxes seems to be the way to go for many in this situation.

Yeah I was 19 and had no guidance. Live and learn I guess.

**bigpapabuff** · 07-25-2011, 08:52 PM

If this will be your primary source of income I would start an LLC, this will make it easier during tax time for all the work related deductions you can take.

**kif** · 07-26-2011, 12:54 AM

I've owned my own business for a few years now, also have a degree in business, i would suggest setting business up as a LLC this will protect your personal assets, another words if someone brings a lawsuit against your business and you lose that lawsuit they can't touch your personal assets. The difference in c-Corp, s- Corp, & 1099 is based on how your business is taxed. Every busines/ industry is different. My business is set up as an LLC and we file taxes as an s-Corp. However the Doctors that work for us as independent contractors are all set up as 1099. Hope this helps some

**RaginCajun** · 07-26-2011, 09:50 AM

thanks to all that replied. looks like LLC is the way to go for me. i will try to figure out all this stuff, kind of overwhelming!

**RaginCajun** · 07-26-2011, 11:01 AM

oh yeah, another question. how much taxes to take out of each check when getting paid bi-monthly? 30% each check?

**kif** · 07-26-2011, 01:28 PM

If your talking about salary paychecks, I would suggest using Quickbooks for payroll, they handle every aspect of your payroll, all your withholdings. They even handle all your end of year paperwork.

**gixxerboy1** · 07-26-2011, 01:37 PM

can i deduct hookers? I mean personal assistants

**spywizard** · 07-26-2011, 01:47 PM

actually yes, and you don't have to 1099 them if you pay them less than $600 yr..

on another note..

sub s is the best structure unless you plan on selling parts of the company, then an LLC is the best vehicle..

when you fill out your tax form you simply give them your federal tax id, now the issue is if you get 100% of your income from this one employer in a year the IRS and the other state agencies can go after them because you are an employee not a contractor, but that's their issue..

Yes roll over into a private IRA,
a better vehicle is a Roth
a still better is a managed pension plan... now what cool about this is you pay with pre tax $$$$ into a managed (by a firm) and it's your pension.. so if you make say $300k and your company pays you $90k a year, state/federal taxes, fica all go off the 90k... the cost to do business trips, phones dinner everything comes off the top at the end of the year you still have $150K which is put into your pension end results your company made $0 and you owe no corp taxes..

see how it works??

**spywizard** · 07-26-2011, 01:48 PM

an attorney will tell you to create an LLC

an accountant will advise to do a Sub S corp (not a S corp)

**RaginCajun** · 07-26-2011, 02:41 PM

Originally Posted by spywizard

actually yes, and you don't have to 1099 them if you pay them less than $600 yr..

on another note..

sub s is the best structure unless you plan on selling parts of the company, then an LLC is the best vehicle..

when you fill out your tax form you simply give them your federal tax id, now the issue is if you get 100% of your income from this one employer in a year the IRS and the other state agencies can go after them because you are an employee not a contractor, but that's their issue..

Yes roll over into a private IRA,
a better vehicle is a Roth
a still better is a managed pension plan... now what cool about this is you pay with pre tax $$$$ into a managed (by a firm) and it's your pension.. so if you make say $300k and your company pays you $90k a year, state/federal taxes, fica all go off the 90k... the cost to do business trips, phones dinner everything comes off the top at the end of the year you still have $150K which is put into your pension end results your company made $0 and you owe no corp taxes..

see how it works??

thanks spywizard!!! that helped out some, my head is still spinning! 100% of my income for next year will be coming from an oil and gas firm. i will have to sign a contract with them in order to get paid. my two friends do the sub s thing i think.

managed pension plan is probably what i would go after. i will not be making 300k, prob more like 70k. so would it still be beneficial to do the sub s corp or LLC in my position? single, no kids, no nothing. and thanks again for helping with this as i have zero knowledge in this!

**RaginCajun** · 07-26-2011, 02:42 PM

Originally Posted by kif

If your talking about salary paychecks, I would suggest using Quickbooks for payroll, they handle every aspect of your payroll, all your withholdings. They even handle all your end of year paperwork.

thanks, i heard that was a great program.

**spywizard** · 07-26-2011, 03:48 PM

Originally Posted by 00ragincajun00

thanks spywizard!!! that helped out some, my head is still spinning! 100% of my income for next year will be coming from an oil and gas firm. i will have to sign a contract with them in order to get paid. my two friends do the sub s thing i think.

managed pension plan is probably what i would go after. i will not be making 300k, prob more like 70k. so would it still be beneficial to do the sub s corp or LLC in my position? single, no kids, no nothing. and thanks again for helping with this as i have zero knowledge in this!

you can still do the sub s.. but no need to do the managed pension plan, just a sep and roth..

**RaginCajun** · 07-26-2011, 04:08 PM

thanks again spywizard! should i start this asap, or just 1099 until the rest of the tax year? i get taxes and everything taken out now, but i will be done with that in two weeks.

**JohnnyVegas** · 07-26-2011, 05:40 PM

Originally Posted by jimmyinkedup

I recall her telling him it isnt like it used to be - a home office deduction requires a lot more to substantiate nd justify than it used to. Not saying you cant by any means - justr saying hopefully an accountant here can chime in and tell you the requirements to do what you asked here -its not as easy as just incorporating....

Agree with above. Home offices are tough now. My wife's mother was audited and they hammered her on her home office...and she is a CPA that only takes a modest home office deduction.

You probably won't save any money on taxes as you will probably start a business entity that has passthrough income. It might allow you to deduct some expenses more easily inside the business entity though. Such as the entity paying rent, rather than taking personal deductions for a home office. But, in order to do this right, you will need to incorporate AND comply with several city, county, state and federal government departments. Fed and state unemployment, state sales tax, state or county business license, state business license, etc. And you are supposed to get liability insurance on your office. Not sure if homeowners will cover it if you are running a business in a place that isn't zoned for it. You will also need many of the above things to open a business checking account. Co-mingling business and personal funds is a huge red flag, so you will need to keep them separate.

Government compliance is a huge pain in the *ss, so I would talk to a CPA and not take ANYONE'S advice (including mine) on this other than a professional. It sucks when you get audited and your only defense is "my friend said this was good enough".

Also watch out for companies that pay their employees as contractors. Unless they are a huge company that has been around for a long time, they might be doing it to avoid paying the matching funds...and the government hammers them when they catch on. The taxes, penalty and interest puts the company out of business. It happens all the time. Plus, if the company doesn't pay the matching funds you can actually pay MORE in taxes because you need to pay an additional self employment tax which basically makes up for the employer not paying the matching funds that come out of your check.

Did I already say talk to a CPA? :-)

**spywizard** · 07-26-2011, 08:57 PM

home office is a red flag.. so i dont even take that..

I will take all of my phone

anything i buy for the house appliances, materials, but i do a retail as well as services, so it all blends in well for me..

w2 and 1099 wages/taxes are all done a little differently..

remember you will have to file a business tax return as well as a individual tax return but again, you can take a lot of expenses, it's best if those expenses are paid directly from the business account..

another example, all employees' in my company (me and the wife) get 100% child care, medical costs, meds, everything paid for all with pretax money..

oh and i'll take 48k miles per year to have for 14 yrs now, changes every year but you get the idea..

all monies paid to a good accountant that is willing to teach you what you should do throughout the year is good money spent..

**RaginCajun** · 07-27-2011, 08:52 AM

thanks for all the advice. i am currently looking for a good CPA. i just wanted to hear the real life experiences and how i can learn from those. i think i am really going to like running my own business!!!

**chuckt12345** · 07-29-2011, 03:15 PM

cajun,
i did contract work for about 6 year over here, same set up as you will be doing. I was incorporated but eventually slacked off and ended it. I would advice you to incorporate. That way you pay yourself salary (something that doesnt raise red flags) and the additional money not paid to you as salary comes in as capital gains from your corporation (which are taxed much lower). I also rather pay penalties and interest at year end instead of paying taxes quarterly because i could make more off that money in the market than my penalty/interest. It gets confusing but once you set it all up it gets easy. Good CPA is the way to go.