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Discussion Starter #1
Major hoops to jump through starting a business. Corporation Commission, State licensing, County Licensing, IRS, State tax, County Tax, FUTA ,SUTA, FICA... geez. There has to be a better way to encourage people to venture out on their own.

For those of you that have started their own business what questions should I ask my CPA when I meet with him today? I went with an LLC because it sounded right at the time but now I think an S Corp might be the way to go. So many things to think about and that's not including doing actual business. :D

The upside is I will probably haul in more $$$ and the freedom that owning your own company affords you. I would do it again but I'd probably would have put more thought into it at the front end.:crap:
 

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I feel your frustrations. I set up an LLC and actually haven't talked with anyone that set up an S Corp. I'm going to try to meet with an accountant this week because I don't know how to handle my investors. Let me know if you find out anything interesting.
 

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Easier to hide assets from lawsuits and such with an LLC, as long as you don't have a bunch of partners.
The whole tax side is crap, though.
 

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Discussion Starter #4
SB,
Here's a comparison of LLC vs. S Corp that I looked up while I was in decision making mode. http://www.powerhomebiz.com/vol136/structure.htm Semi informative.

I will most definitely get back to you. I'm hoping he recommends sticking with an LLC b/c it is a PITA to change ( I went from a regular sole proprietorship to an LLC a couple months ago). Even within an LLC there are decisions to be made for tax purposes...a sole proprietorship LLC , a partnership LLC, and a corporation LLC.
 

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Some differences vary from state to state. Michigan was late to the party allowing LLC's, but they afford most (if not all) of the protection of an S-Corp, cost less to set up, and the income flows through your personal return.
My lawyer and accountant look at them as being functionally equivalent.

The only reason that you would ever want to change it is to get a C-corp status, but that's a whole different animal, tough and expensive to convert from an S to a C as well.

And the "freedom that owning your own company affords you ?" Hmmm.
A good friend called me yesterday from Irvine, CA where he owns a photography studio. He owns his own business, but 16 year old girls are making decisions as to which photog to use for dances, sports, and yearbook.

So he's literally working for them.


Hey, Abtech! How many letters in the word "partner?"
 

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Discussion Starter #7
CBRVFR said:
Some differences vary from state to state. Michigan was late to the party allowing LLC's, but they afford most (if not all) of the protection of an S-Corp, cost less to set up, and the income flows through your personal return.
My lawyer and accountant look at them as being functionally equivalent.

The only reason that you would ever want to change it is to get a C-corp status, but that's a whole different animal, tough and expensive to convert from an S to a C as well.

And the "freedom that owning your own company affords you ?" Hmmm.
A good friend called me yesterday from Irvine, CA where he owns a photography studio. He owns his own business, but 16 year old girls are making decisions as to which photog to use for dances, sports, and yearbook.

So he's literally working for them.


Hey, Abtech! How many letters in the word "partner?"
Good info.

I hear ya, the customer is always the boss! I guess the freedom I am referring to in my type business is that I can pick and choose which jobs I take and I don't have a boss (besides the customer and Uncle Sam :rolleyes: ).

There are pros and cons in anything you choose to do.:idunno:
 

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sheepofblue said:
Wait until you realize that the government has a higher margin on your work than you do :eek:
Bah, of course they do. They have no money/time in your business, but extract taxes from it.

That statement is true of anyone in a tax bracket beyond the ones that get more money back than they pay in.
 

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luvtolean said:
Bah, of course they do. They have no money/time in your business, but extract taxes from it.

That statement is true of anyone in a tax bracket beyond the ones that get more money back than they pay in.
No the point was if you profit margin is 10% taxes are much higher. Thus on any dollar spent after bills are paid the amount you put in your pocket will be lower than your tax rate.
 

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If your profit margin is 10% in a small business, you're going out of business, so the point is moot.
 

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Discussion Starter #13
Sunbert said:
I feel your frustrations. I set up an LLC and actually haven't talked with anyone that set up an S Corp. I'm going to try to meet with an accountant this week because I don't know how to handle my investors. Let me know if you find out anything interesting.
Well I just got back from the CPA and I'm glad I went with the LLC. Since I'm my company's sole employee I probably don't have to pay SUTA and FUTA.:thumb:
With the S Corp you have to pay yourself a salary where with an LLC you can take draws from the company . The only thing I pay taxes on is net income. There are of course drawbacks to the LLC route but for now I'm sticking with it.
 

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phobiaphobe said:
10% net? That's pretty not bad if you ask me.
Let's do the math.

10% of $1,000,000 yearly gross is $100,000. If you then pay taxes on that, you're at what I consider a normal living wage. (comfortable, but you're not buying any Ferraris)

I'd say roughly half of my friends are self employed and only one or maybe 2 has ever grossed over $1mil.

Several gross well under ½mil and in CA $50k is peanuts.
 

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luvtolean said:
Let's do the math.

10% of $1,000,000 yearly gross is $100,000. If you then pay taxes on that, you're at what I consider a normal living wage. (comfortable, but you're not buying any Ferraris)

I'd say roughly half of my friends are self employed and only one or maybe 2 has ever grossed over $1mil.

Several gross well under ½mil and in CA $50k is peanuts.
Ok well we're looking at "net" profit differently I guess. I'm considering net profit to mean after everything is paid.

edit: including manager's salary
 

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Discussion Starter #17
phobiaphobe said:
Ok well we're looking at "net" profit differently I guess. I'm considering net profit to mean after everything is paid.

edit: including manager's salary
:thumb:

That's how all the books I have been reading on the subject explain it as well.
 

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If a person is paying himself a good salary, pays all other bills, and has 10% left over, they're doing well.

"Margin" on work, which I was initially talking about, typically refers to profit made on the sale after expenses. If you make a widget for 10¢, and sell it for 11 your margin calculation is:

Margin = (11-10)/11 * 100 = 9.1%

If your "cost", 10 cents, is how much you made it for, you're going broke. If your cost model includes all costs, including all overhead, taxes etc and yourself, then that is good.

I've only done a bit of this, but I've never seen a cost model put everything, including taxes, into the cost.

Cost normally consists of raw materials, machine depreciation (maybe, but not always), plant electricity etc etc. Only things directly related to producing the product. Sales, marketing, interest, taxes, the head cheese's salary, all come out of the margin.

EBIT- Is a number the street looks for in public companies. Earnings Before Interest and Taxes (An important # to me as my bonuses are based on this for my division)

NET is just that, but it is not analogous to margin.
 

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"Net profit", not "margin"
 
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