Question for California contractors......

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Fulthrotl

~Autocorrect is My Worst Enema.~
ok, in reading the not so fine print, i discover that i can place a
C-10 license under a LLC....

when i pulled my C-10 in 2006, that was not the case. it changed
in Sept. 2010. duh.

my question to any of the california contractors out there, who
are running under a LLC...

what can it do for you, and what can it do to you?

are there any advantages with regards to taxes?

i'm currently a sole prop. and don't see any great advantage,
as i have no employees. it seems the only thing i'd get would
be protection from claims personally against the business, but
i don't see that as a compelling reason, as if i were sued, as i
am doing the work myself, i'd just be sued personally, and that
would be that. i've already taken steps to protect me in that situation,
to the extent that anyone can protect themselves against a lawsuit.

so, i'm wondering about tax advantages of a LLC versus a Sole Prop.

anyone with experience with this, i'd like to hear it. if it's not something
you'd want to put on a public forum, the PM button is right over there...

thanks in advance.

randy
 

hbiss

EC, Westchester, New York NEC: 2014
Location
Hawthorne, New York NEC: 2014
Occupation
EC
I think you nailed it as far as liability is concerned. As far as taxes, I believe you are taxed (and file) the same as a sole proprietor since the IRS doesn't recognize LLCs. Don't know about your state taxes.

All in all I don't see anything that would be different in your situation except the cost to set up an LLC. I would consult with an accountant to be sure but this sounds like just more California garbage to me.

-Hal
 
http://www.nolo.com/legal-encyclopedia/sole-proprietorships-vs-llcs.html
"On the other hand, an LLC is a separate legal entity and an LLC member is normally not personally liable for the LLC’s debts or legal liabilities. As an LLC owner, you are mainly putting your financial contribution to your LLC, not your other personal assets, on the line."

Not exactly "California garbage". Google "llc or sole proprietor", some of the sources, like NoLo Press, are well-respected and actually accurate.
 

hbiss

EC, Westchester, New York NEC: 2014
Location
Hawthorne, New York NEC: 2014
Occupation
EC
On the other hand, an LLC is a separate legal entity and an LLC member is normally not personally liable for the LLC’s debts or legal liabilities.

I laugh at those radio commercials by some outfit that sells LLC packages and says owning a business without being incorporated is like jumping out of a plane without a parachute. :lol:

Yes, to an extent it's true if you don't pay your bills and get sued. Unfortunately creditors are a little smarter than that and nearly always make the owner of the company personally guarantee payment for any decent line of credit- unless your company is long established and can show an excellent credit history.

If you or an employee is found negligent (say your truck injures or kills somebody or an employee gets hurt or killed and it's found that you should have done something differently) the corporate veil will not protect you or your personal assets.

If you don't do your payroll withholding or screw it up and owe money, the feds and the state will come after you and anybody that you allow to sign your business checks personally.

These are just a few things off the top of my head. So as far as I'm concerned, if you are in business you choose the form that gives you the best tax advantages then keep a smart attorney on retainer to save your ass.

-Hal
 

Fulthrotl

~Autocorrect is My Worst Enema.~
I laugh at those radio commercials by some outfit that sells LLC packages and says owning a business without being incorporated is like jumping out of a plane without a parachute. :lol:

Yes, to an extent it's true if you don't pay your bills and get sued. Unfortunately creditors are a little smarter than that and nearly always make the owner of the company personally guarantee payment for any decent line of credit- unless your company is long established and can show an excellent credit history.

If you or an employee is found negligent (say your truck injures or kills somebody or an employee gets hurt or killed and it's found that you should have done something differently) the corporate veil will not protect you or your personal assets.

If you don't do your payroll withholding or screw it up and owe money, the feds and the state will come after you and anybody that you allow to sign your business checks personally.

These are just a few things off the top of my head. So as far as I'm concerned, if you are in business you choose the form that gives you the best tax advantages then keep a smart attorney on retainer to save your ass.

-Hal

after posting, i did some checking. there is no tax advantage in calif. to doing this for me.
the P&L on the LLC would be filed on my personal return. no separate corporate return.
a profit left in the LLC will be taxed as ordinary income.

as with all taxes, you have to spend it to keep it. any money not spent in the operation
of the business will be taxed, and judging by the rates, the theory is if you didn't need
that money to operate the business, then you really don't need it at all... we will take it,
thank you.

and if there is any liability occurred in my business, as a one man band, it's going to
end up on my porch anyway. it's going to occur as a direct result of my actions, and
i'm personally liable for them. against osha, or irs, or ftb, a corporate veil doesn't amount
to much.

as to contract disputes, i've had one contract in the last five years. everything else has
been a handshake. not much to dispute.
 

gadfly56

Senior Member
Location
New Jersey
Occupation
Professional Engineer, Fire & Life Safety
I laugh at those radio commercials by some outfit that sells LLC packages and says owning a business without being incorporated is like jumping out of a plane without a parachute. :lol:

Yes, to an extent it's true if you don't pay your bills and get sued. Unfortunately creditors are a little smarter than that and nearly always make the owner of the company personally guarantee payment for any decent line of credit- unless your company is long established and can show an excellent credit history.

If you or an employee is found negligent (say your truck injures or kills somebody or an employee gets hurt or killed and it's found that you should have done something differently) the corporate veil will not protect you or your personal assets.

If you don't do your payroll withholding or screw it up and owe money, the feds and the state will come after you and anybody that you allow to sign your business checks personally.

These are just a few things off the top of my head. So as far as I'm concerned, if you are in business you choose the form that gives you the best tax advantages then keep a smart attorney on retainer to save your ass.

-Hal

Actually, that's exactly what it will protect you from. Now, this is simple negligence, not gross negligence. However, gross negligence is usually a pretty high hurdle for plaintiff to cross. Also, in a bankruptcy while a secured creditor (like the bank who wants you to put up your home) may end run your semi-corporate shield, all your run-of-the-mill creditors (supply house, water company, electric company, gas/oil company (all assuming you have an office separate from your dwelling), the garage that services your trucks, etc) will have to get in line for any remaining crumbs.
 

mlnk

Senior Member
If you have had the same contract for the last 5 years...you need to update it. Read the new requirements on the CSLB website.
 

ramsy

Roger Ruhle dba NoFixNoPay
Location
LA basin, CA
Occupation
Service Electrician 2020 NEC
after posting, i did some checking. there is no tax advantage in calif. to doing this for me...
My CPA said when Sole Props net > $50k-yr, filing as a Corp. cost less in taxes, even with paperwork & extra book keeping costs he would charge me.
 

curt swartz

Electrical Contractor - San Jose, CA
Location
San Jose, CA
Occupation
Electrical Contractor
My CPA said when Sole Props net > $50k-yr, filing as a Corp. cost less in taxes, even with paperwork & extra book keeping costs he would charge me.

The last time I asked my CPA he said it would take well over $100K just to break even.

The income is going to get taxed no matter what you do. If you take it as a salary it will per personal income tax. If you take it out as a dividend it will be taxed as capital gains. If you keep it in business the corporation will have to pay income tax. If you need the money to live you will need to take it out of the corporation some way.

Another thing to keep in mind for 1-man shops and small shops is the corporation really does nothing to protect you from a lawsuit. If someone goes after you they are going to go after the corporation and you personally. For small shops the owner usually has direct knowledge and control over the jobs so they can be held liable.

If you are a sole proprietorship your liability insurance will pay to defend you. If you incorporate the liability insurance will defend the corporation and you will need to pay your own defense attorney.

Most construction lawsuits get settled out of court by the insurance companies. If the settlement agreed to by the insurance companies it $100K and you are a sole proprietorship your insurance company will cover the settlement. If you are incorporated the insurance company will probably cover half the settlement and expect you to cover the other half. If you refuse to pay to settle the case plan to be ready to cover the legal expenses of all parties during the trial.
 

Fulthrotl

~Autocorrect is My Worst Enema.~
The last time I asked my CPA he said it would take well over $100K just to break even.

The income is going to get taxed no matter what you do. If you take it as a salary it will per personal income tax. If you take it out as a dividend it will be taxed as capital gains. If you keep it in business the corporation will have to pay income tax. If you need the money to live you will need to take it out of the corporation some way.

Another thing to keep in mind for 1-man shops and small shops is the corporation really does nothing to protect you from a lawsuit. If someone goes after you they are going to go after the corporation and you personally. For small shops the owner usually has direct knowledge and control over the jobs so they can be held liable.

If you are a sole proprietorship your liability insurance will pay to defend you. If you incorporate the liability insurance will defend the corporation and you will need to pay your own defense attorney.

Most construction lawsuits get settled out of court by the insurance companies. If the settlement agreed to by the insurance companies it $100K and you are a sole proprietorship your insurance company will cover the settlement. If you are incorporated the insurance company will probably cover half the settlement and expect you to cover the other half. If you refuse to pay to settle the case plan to be ready to cover the legal expenses of all parties during the trial.

yeah, what i found out pretty much mirrors all this. thanks for taking the time to post it.

my best hedge is a self employed IRA. i can simply deposit up to $52,000 per year and
if i am past the age of 59 1/2, i can draw it out whenever i want, and it simply becomes
taxable income at the time i withdraw it.

as i just turned 60, it simply means i can put it in the bank, and avoid the taxes.

when your net taxable hits $417,000 you max the tax tables.
your combined fed and calif. state will exceed 50%. self employment tax
is another 15%, but that largely stops at $125K.

so, the first $125K is 66% tax, above that is 51%, if you peg the meter.
don't say it. it is what it is. there are two ways to look at it.

first, what ever you spend as a deductible expense, the tax savings pays for over half of it.

second, whatever you personally spend costs you twice as much as it does someone who isn't
paying taxes. a $40 dinner with your spouse costs $80. the short version is, if you spend
money that isn't deductible, put the same amount you just spent into your impound account for
your quarterlies.

this means that a work vehicle that i depreciate, half that depreciation comes back to me
in reduced taxes. so, i'm getting a work car, for when i'm doing stuff that doesn't need
a van and trailer. i'd be crazy not to.

will have to see how cash flow goes, but as near as i can tell, the perfect work vehicle
would be a 2016 Cadillac CTS-V. it would be ideal to put it into service in January.
quiet, unobtrusive, practical.

jill and i are discussing it. she's not entirely convinced..... yet.
 
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