# Which would be better LLC or Sole Proprietorship?



## Ljtrucking (Jul 10, 2014)

Which one would you seggest to start off as when going sole no other workers or employees.


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## aaron_a (Dec 18, 2013)

Varies by state. Some states offer more protections to an llc, others like pa don't offer so much.

Also it depends on how much you are making, with an llc you can pay yourself a salary, then at the end of the year, pay a lower tax rate on remaining profits.


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## 66 Shelby (Jan 11, 2009)

Hire an attorney and ask him. You're going to need one anyway, going solo, so get that relationship started now. That being said, a LLC works best for my situation (one man show with a part time helper). It will vary from state to state.


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## jb4211 (Jul 13, 2010)

I have an LLC
I started off at a sole proprietor
Switch because of the protection offered

But, if I was starting out I would've started with the LLC.


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## Spencer (Jul 6, 2005)

I'm a sole proprietor. I need to become an LLC or C-corp. Very dangerous as a sole proprieter if you have any assets. You have no protection.

In most cases it is a tax advantage to become an llc or c-corp.


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## jb4211 (Jul 13, 2010)

Spencer said:


> I'm a sole proprietor. I need to become an LLC or C-corp. Very dangerous as a sole proprieter if you have any assets. You have no protection.
> 
> In most cases it is a tax advantage to become an llc or c-corp.


What's holding you back?


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## WBailey1041 (Jan 31, 2014)

Spencer said:


> I'm a sole proprietor. I need to become an LLC or C-corp. Very dangerous as a sole proprieter if you have any assets. You have no protection. In most cases it is a tax advantage to become an llc or c-corp.


Only If you have 50k a year to roll over tax free, otherwise taxes are offset by filing fees and cpa prep fees. So I'm told.


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## SDel Prete (Jan 8, 2012)

I started as LLC and now changing to S-corp


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## CQC (Aug 5, 2013)

It is a question more for your CPA to help you figure out after reviewing you situation.


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## 480sparky (Feb 1, 2009)

Your accountant will tell you which is best. Then have your lawyer do it.


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## SDel Prete (Jan 8, 2012)

CQC said:


> It is a question more for your CPA to help you figure out after reviewing you situation.


Exactly


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## brickhook (May 8, 2012)

My company is LLC. My accountant advised me, that for $50 a year....That's the cheapest insurance I'll ever pay for.


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## Warren (Feb 19, 2005)

Spencer said:


> I'm a sole proprietor. I need to become an LLC or C-corp. Very dangerous as a sole proprieter if you have any assets. You have no protection.
> 
> In most cases it is a tax advantage to become an llc or c-corp.


Please explain the tax advantages of an LLC vs a sole proprietor. I have been an LLC for almost 10 years and have seen zero tax advantages.


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## Steve'sSon (Aug 16, 2014)

my personal real world knowledge = zero. 

Lurking on the forums and using the search function on this topic I came to conclusion that liability, nowadays, was an insurance issue only. If your business doesn't carry enough insurance to satisfy a lawsuit then there will just be a second lawsuit filed against you as an individual. Which defeats the purpose of being a INC or LLC or anything other than SP. 

...

I took that as: let the decision be based on other benefits and factors. Whatever works best for your bottom line, in other words. 

BUT make sure you're well insured. 

(I'm certainly interested in hearing opinions on this)


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## brickhook (May 8, 2012)

Steve'sSon said:


> my personal real world knowledge = zero.
> 
> Lurking on the forums and using the search function on this topic I came to conclusion that liability, nowadays, was an insurance issue only. If your business doesn't carry enough insurance to satisfy a lawsuit then there will just be a second lawsuit filed against you as an individual. Which defeats the purpose of being a INC or LLC or anything other than SP.
> 
> ...


I carry a very large liability policy. But the LLC suppose to keep someone away from your personal property.


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## Spencer (Jul 6, 2005)

Warren said:


> Please explain the tax advantages of an LLC vs a sole proprietor. I have been an LLC for almost 10 years and have seen zero tax advantages.


My understanding is that it allows you to not pay FICA taxes on income that is not salary. 

My tax guy brought up the $50k number as quoted below. With my books he said an LLC still made sense with the $50k number.

It may not apply to an LLC but I think either the S or C-corp allows you to save one side of the 7.5% FICA. Not up to date on it. I'll probably cross this bridge later this fall. All I know is that if I don't have deductions I lose 35% of my income. 15 FICA, 15 Income, 5 Local.



WBailey1041 said:


> Only If you have 50k a year to roll over tax free, otherwise taxes are offset by filing fees and cpa prep fees. So I'm told.


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## totes (Oct 17, 2013)

jb4211 said:


> I have an LLC
> I started off at a sole proprietor
> Switch because of the protection offered
> 
> But, if I was starting out I would've started with the LLC.


Same.


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## jb4211 (Jul 13, 2010)

Steve'sSon said:


> my personal real world knowledge = zero.
> 
> Lurking on the forums and using the search function on this topic I came to conclusion that liability, nowadays, was an insurance issue only. If your business doesn't carry enough insurance to satisfy a lawsuit then there will just be a second lawsuit filed against you as an individual. Which defeats the purpose of being a INC or LLC or anything other than SP.
> 
> ...


You are misinformed.
LLCs, S & C Corporations are considered legal entities - a person in the eye of the law. LLCs must be run likewise to be offered that same protection. If there is legal action brought, it is brought against the company, not the company's owner(s) and his personal assets.

Rather than gather information from forums and the internet, how about you discuss the issues with an attorney.


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## WBailey1041 (Jan 31, 2014)

Just file as an LLC. The biggest advantage in my humble opinion is the ability to separate personal credit from business. Simply put if you default on business contracts and loans you won't loose your house unless you were dumb enough to personally guarantee the loan. (Co sign for the business )


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## DBBII (Aug 28, 2008)

The advice I got was to be a C-Corp. Tax implications can be managed. This is based on being a GC. Depending on your state (and this is why you need an attorney), a "one-person" LLC is not as secure as a C-Corp. 

I was told to think of myself as General Motors (OK, without the guv'ment). Issue, for example, 100 shares of stock. Find a couple of good friends and sell each of them 1 share. You keep 90 so you are always in control. You then have stockholders -- it's not just you. 

The idea is to protect your individual assets.


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## jb4211 (Jul 13, 2010)

Meetings, minutes, etc.???


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## kiteman (Apr 18, 2012)

I was a c-corp for 30 years and switched to an s-corp last year. I think the advantages of being an s-corp for lower taxes on disbursements are the main reason. As an llc you can choose as to which type entity you choose to file taxes as


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## Controlfreak (Sep 14, 2014)

I filed an LLC 3 weeks ago and I used Legal Zoom. I purchased the most expensive package they offered and bought every option they had. I had people tell me I didn't need to do it because I was only opening a HVAC Control repair company and I would not be out in the field but I am so happy that I bought all of the bells and whistles. They do everything and my LLC was official Friday. It sounds like I work for Legal Zoom but you get unlimited 30 consults with lawyers and accounts in your state not only about the company but anything in your life. The best thing is your whole family can use the service. So when I developed a solution so that people would not have to use a PIK with the ESS software that manages a large line of HVAC controls located in retial stores I had a lawyer to help answer questions. They even did my copyright on my Building Automation Software Key for free. They also have a libary of very useful legal documents. I am working with HVAC Digital to offer repair support on HVAC controls and they gave us a free mutual NDA that form alone was 20-30 bucks. I will use Legal Zoom for everything I can and I say it's worth the 300-400 bucks by far!!!


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## Controlfreak (Sep 14, 2014)

wrote the same thing two time sorry


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## Marven (Jul 15, 2013)

Ljtrucking said:


> Which one would you seggest to start off as when going sole no other workers or employees.


When you are a sole member of an LLC, you file it on your taxes just like you would a Sch C. You pay income tax and social security taxes on all your income. How much protection the LLC gives you is a matter of debate. I always say that if you are doing the work, you are liable personally for any mistakes you make. If you have employees and they do the work, the LLC will give you protection from mistakes they make. (hitting a school bus while reaching for a beer on way to work).

If you are an LLC and elect to be treated as an S corp, as mentioned above, you may be able to not pay SS on all your income. But instead of filing on 1040 Sch C, you will file form 1120S (more $$).

I would not recommend a C Corp. You can easily end up being double taxed on your income.


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## kiteman (Apr 18, 2012)

Seems to me in a c corp you're about guaranteed to be double taxed. The corporation is taxed on its profits, you pay payroll taxes on your income, and dividends are taxable to both you and the corp.


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## TNTRenovate (Aug 19, 2010)

Spencer said:


> I'm a sole proprietor. I need to become an LLC or C-corp. Very dangerous as a sole proprieter if you have any assets. You have no protection.
> 
> In most cases it is a tax advantage to become an llc or c-corp.


s-corp not c if you are staying under 50 employees.


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## huggytree (Nov 3, 2013)

when i started i did all the research and decided a LLC was the way to go for a small 1 man shop...im a LLC and i file as an S Corp 

your accountant or lawyer should give you advice


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## TNTRenovate (Aug 19, 2010)

One big advantage to going LLC or Corp is that you can sell your company all of your equipment. Your company then can make payments to pay you for your "stuff". It becomes the property of your company and therefore no longer protected assets, but it is tax free money. Not really, since you already paid taxes on it before you purchased the equipment.

It's called a loan repayment.

The dividend savings isn't anything to laugh at. It far exceeds any expense in filing and fees.


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## Marven (Jul 15, 2013)

TNTSERVICES said:


> One big advantage to going LLC or Corp is that you can sell your company all of your equipment.


When you sell your company, the sale is taxed. Then you can take the money out as you wish if it is not a C corp.


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## TNTRenovate (Aug 19, 2010)

Marven said:


> When you sell your company, the sale is taxed. Then you can take the money out as you wish if it is not a C corp.


The profit on the sale is taxed, not the sale. And then there are ways around that. But then the profit is divided based on shares.

If you are not a corportation or LLC you can do what you want, the law of the land doesn't see you or your company as different.


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## Marven (Jul 15, 2013)

TNTSERVICES said:


> The profit on the sale is taxed, not the sale. And then there are ways around that.


What are the ways of not paying taxes on the profit of selling the business?


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## TNTRenovate (Aug 19, 2010)

Marven said:


> What are the ways of not paying taxes on the profit of selling the business?


ESOP plan

Convert to S corp before sale (if your company qualifies). Avoids the Medicare surtax along with double taxation.

And how you structure your payments and assigning value to assets.

Hiring a good accountant can help you avoid much pain during a sale and greatly reduce your tax liability.


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## kiteman (Apr 18, 2012)

Also how much is equity vs profit


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## Marven (Jul 15, 2013)

Employee stock ownership plan does not change the tax on the sale.

Allocation of sales price to certain assets must be agreeable to both buyer and seller. In other words, it must be a fair allocation. This may reduce tax but is limited in scope. You cant say tools were sold for $1 because the buyer wants a reasonable figure.


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## TNTRenovate (Aug 19, 2010)

Marven said:


> Employee stock ownership plan does not change the tax on the sale.
> 
> Allocation of sales price to certain assets must be agreeable to both buyer and seller. In other words, it must be a fair allocation. This may reduce tax but is limited in scope. You cant say tools were sold for $1 because the buyer wants a reasonable figure.


That's cute you googled something.

I really don't want argue about this but esop's can save you money on a sale. Just ask your accountant how, or do another google search, but this time put in tax benefits of esop in the sale of a company.

And allocation doesn't have to be fair, just agreed upon. Fair is in the eye of the beholder.

But like I said, call your accountant or do a bit more research. There are many ways to save money and reduce your liability when you sell your company.


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## Marven (Jul 15, 2013)

I am an accountant.


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## TNTRenovate (Aug 19, 2010)

Marven said:


> I am an accountant.


Ouch...so you should know better.


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