DBA Vs S corporation for a new business??

[2000xlt]

I am considering "heavily" starting my own business, which is basically a general commercial cleaning service. I am going to an insurance co tomorrow to gather info about DBA and insurance. Any advice as to i should use a DBA or be incorporated?

 

[LuxLuthor]

Small individual based business will do better as a sole proprietership where profits and losses flow through as regular income (or losses) on your individual return. Corporate means you have to form, file, and pay to incorporate, file separate corporate state and fed returns, more money to accountants & lawyers. If you get larger and hire a bunch of employees, you can consider forming a corporation down the road if you need the protection insulation of a corporation from actions of your employees. There is no protection for your own actions by forming a corporation, as the legal principle of "piercing the corporate veil," has been established long ago.

 

[2000xlt]

i was also looking into an LLC, today i was talking to someone whos cousin is a CPA and has worked with some big names. I may give him a call on monday, my friend who told me about him thinks i should do a s corporation. And so that i dont have to worry about taxes, when i get paid, i take out the sales tax and deposit that in a seperate account so that way i know there will be money for taxes on non cash jobs...still alot to think about, though i really want to get this ball rolling

 

[jtr1962]

S-Corp versus LLC

In general, LLCs are more costly to set up than S-Corps but a lot easier to do come tax time (Schedule C versus filing as a corporation). However, an LLC offers no tax advantages over simply setting up your business as a sole proprietor (you pay 15.3% self-employment tax either way). An S-corp allows you to avoid some or all of the self-employment tax. It all depends on how much profit the S-corp makes. If it's only a small amount, you can simply pay it out as distributions which are only subject to regular income tax. On the other hand, if you make a good amount, it's expected that the S-corp will pay you a salary in line with industry standards for whatever work you're doing. That salary would be subject to self-employment tax, unemployment insurance, and disability insurance. But any profits beyond a reasonable salary can still be paid out as distributions. So if/when you're very profitable an S-corp is ultimately the way to go. Prior to that, I would just file as a sole proprietor and forget an LLC or S-corp. Not worth the extra paperwork or expense. An LLC especially won't offer you any tax savings over sole proprietorship. Another thing which bears mention is that in certain locations (NYC for one) S-corp status is NOT recognized. Make sure it is recognized where you'll be doing business. Over here, even though S-corp profits are passed through to the shareholders and taxed as ordinary income, the S-corp must still pay the same NYC corporation taxes as a regular corp on these profits. This more or less eats up any potential savings in self-employment taxes in NYC.

 

[LuxLuthor]

i was also looking into an LLC, today i was talking to someone whos cousin is a CPA and has worked with some big names. I may give him a call on monday, my friend who told me about him thinks i should do a s corporation. And so that i dont have to worry about taxes, when i get paid, i take out the sales tax and deposit that in a seperate account so that way i know there will be money for taxes on non cash jobs...still alot to think about, though i really want to get this ball rolling

There are a lot of hidden costs in both forming and maintaining a separate S-Corp that mitigate its benefits for a small startup operation. Also, CPA's that specialize in large clients do not have the same experience as those that primarily work with small start-ups. Nothing wrong with talking to any and all the resources you can find, but make sure you ask about the corporate state filing fee, changes in corporate profit tax rates vs. individual income tax rate--changes are afoot. There are legal fees for properly incorporating, and ongoingly satisfying corporate requirements (stock, officers, stockholders, annual meeting & other records, separate state and federal corporate tax filings, regular deduction and payment of payroll taxes--requiring more expense to setup and monitor compliance & any changes, etc.).

You can always change from a sole-proprietership to a corporation later if you have substantial profits to justify it. This gives some time to see if a number of the currently proposed anti-business tax increases will pass the currently controlled federal government.

 

[HarryN]

Hi - I strongly suggest a C corp. At least in CA, it is easy to set up, requires no specialized skills or hiring an attorney. The paper work filings are no worse, and there is no difference in costs to an S Corp.

I used to work as a DBA, and my taxes were complicated. Now I work as a C Corp - my tax filings are easier, I can take deductions not possible other ways, and if I ever decided to sell all or part of the business, it is a lot more straightforward. No, I am not a big company.

 

[flashfan]

My suggestion is to seek out the advice of professionals in your area. Spend the time and money now to set everything up right, rather than spend more time and money later to make a change (if you make a "mistake"). Of course, there are many unscrupulous "professionals" out there, so beware.

No experience with sole proprietorship, but one thing I've noticed over the years. When LLCs and LLPs were introduced, I noticed a definite trend of existing companies to change to LLCs and LLPs (especially attoneys and accountants). I heard but can't verify, that it had something to do with income stream and double taxation.

An accountant recently told my mother that he generally recommends LLCs rather than corporations to his clients. But everyone's situation (and place of business) is different, which is why you should check with professionals within you local area.

Just some food for thought.

 

[HarryN]

My suggestion is to seek out the advice of professionals in your area. Spend the time and money now to set everything up right, rather than spend more time and money later to make a change (if you make a "mistake"). Of course, there are many unscrupulous "professionals" out there, so beware.

No experience with sole proprietorship, but one thing I've noticed over the years. When LLCs and LLPs were introduced, I noticed a definite trend of existing companies to change to LLCs and LLPs (especially attoneys and accountants). I heard but can't verify, that it had something to do with income stream and double taxation.

An accountant recently told my mother that he generally recommends LLCs rather than corporations to his clients. But everyone's situation (and place of business) is different, which is why you should check with professionals within you local area.

Just some food for thought.

Yes, it is a good idea to consult a professional who does either Tax Consulting or Business Development Consulting for a living. Your welcome for the no-cost advice.