making the all mighty decision HELP

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jatindall82

Member
Location
troup, texas
I read earlier threads about LLC's and scorp great advice. I am about to start a business doing 95% resi ranging from 2500 sqft to 12,000 in Texas. I will have one employee but paying him as a sub contracted. I plan to keep it just him and I as long as possible. Of course just like any company doing anything I want to grow so I know that my company may change as the years pass in terms of inc, llc, etc. With the parameters I have described would I be better off as sole proprietor, dba, llc. Im lost when it comes to all this as im sure all are in the beginning. I however am working with VERY tight funds and hoping the great people here can give advice from wise years of experiences. Any advice is greatly appreciated
 

GoldDigger

Moderator
Staff member
Location
Placerville, CA, USA
Occupation
Retired PV System Designer
My very first advice is that if you are working with very tight funds do not quit your day job.
The vast majority of startup businesses fail and the biggest cause of failure is not having enough money to carry through until it becomes profitable.
 
I will have one employee but paying him as a sub contracter.

Tax authorities take a dim view of this- if he looks like an employee and acts like an employee, well, don't pay him on a 1099. (More specifically, if he isn't set up as an electrical contractor, you shouldn't pay him as one.)

And second on the funding- if you don't have a either a pile of cash to burn or a line of credit that you're willing to spend on this, you're probably not ready for being in business. More specifically, if you don't have at least six months of living expenses in the bank (rent/mortgage, food, utilities, etc), you're probably not ready to strike out on your own like this.
 

John120/240

Senior Member
Location
Olathe, Kansas
You can be an A plus electrician but a lousy businessman. Bidding jobs, collecting from dead beat customers, dealing with supply house, the list goes on & on.
Ken 480sparky I think has a list of overhead expenses that need to be considered. Others will chime in.
 

Ponchik

Senior Member
Location
CA
Occupation
Electronologist
You need to do a realistic cost calculation and see what your hourly wage should be.

You should not include more than 1000 billable hours per year (even though you will work 4000 hrs), your vacation pay, car expense, your medical, retirement, work clothes, cost for new vehicles, phones, computer/s, office, office staff, tools, insurance, your pay, 20% profit, education........

You can not pay the employee as a contractor, having said that you have employee tax cost.

Just because you may know about teh code and how electricity works and you can wire homes, it does not make you a business person. You need to take business classes and in home sales classes.
 

iwire

Moderator
Staff member
Location
Massachusetts
I will have one employee but paying him as a sub contracted.

It is impossible to have an employee that is a subcontractor to you.

It is one or the other.

As has been mentioned you can get into serious trouble if the IRS determines it is an employee that you have been treating as a sub contractor.
 

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
I will have one employee but paying him as a sub contracted.

This is almost certainly not legal and might well result in a long term problem for you. He is almost certainly an employee legally and you are going to have to suck it up and do what you have to do if you want to keep him working for you.

You might want to spend some money to get some good legal and accounting advice rather than trying to get free advice from random people on the Internet. Every state is slightly different in how different kinds of businesses are treated for tax purposes and for liability.

You probably will find that a small business with no track record is going to have a very hard time getting credit from suppliers without some kind of personal guarantee, and that might well open you up to personal liability even if it is a corporation or an LLC. That is just one reason of many why you need to pay people who actually know what they are talking about for their professional advice on this.

Most people just do not understand the "s corp" thing. It is not a type of corporation. It is a choice you are allowed to make with the IRS that allows you to pass the profits of the company onto your personal income tax return instead of having to pay taxes as both a corporation and an individual. In MOST cases, this is financially beneficial to you as a small business owner. However, there may in some cases be reasons you don't want to do this that a competent accountant can review with you. The "S" designation refers to subchapter S of the tax code.
 

iwire

Moderator
Staff member
Location
Massachusetts
You might want to spend some money to get some good legal and accounting advice rather than trying to get free advice from random people on the Internet. Every state is slightly different in how different kinds of businesses are treated for tax purposes and for liability.

I will be very surprised if this does not end up being the very best advice given in this thread.
 

gadfly56

Senior Member
Location
New Jersey
Occupation
Professional Engineer, Fire & Life Safety
I will be very surprised if this does not end up being the very best advice given in this thread.

I'll second the motion. Also, taking some business courses at your local community college should be a no-brainer.
 

cdslotz

Senior Member
I will have one employee but paying him as a sub contracted

Unfortunately, most or all of his competition is doing just this.
Every resi EC uses sub-crews around here. Commercial is harder to pull it off.
You should see all of the Craigslist ads for sub crews around here.
 

gadfly56

Senior Member
Location
New Jersey
Occupation
Professional Engineer, Fire & Life Safety
Unfortunately, most or all of his competition is doing just this.
Every resi EC uses sub-crews around here. Commercial is harder to pull it off.
You should see all of the Craigslist ads for sub crews around here.

If I was an employee of the Texas Workforce Commission looking to fill my quota, I'd be trolling those ads and auditing those companies. Stupid is as stupid does.
 

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
Unfortunately, most or all of his competition is doing just this.
Every resi EC uses sub-crews around here. Commercial is harder to pull it off.
You should see all of the Craigslist ads for sub crews around here.

there is nothing wrong with a legitimate subcontracting arrangement. but just paying someone on a 1099 instead of a W2 is not a legitimate subcontracting arrangement.
 

gadfly56

Senior Member
Location
New Jersey
Occupation
Professional Engineer, Fire & Life Safety
there is nothing wrong with a legitimate subcontracting arrangement. but just paying someone on a 1099 instead of a W2 is not a legitimate subcontracting arrangement.

Generally the question to be answered is: Do you make your own schedule, or not? If I'm a legitimate sub to an EC, all he does is tell me when the work has to get done by, then I'm free to plan as I wish. If he says, "You have to be there by 0700 all next week", then I'm not a sub, I'm an employee.
 

K8MHZ

Senior Member
Location
Michigan. It's a beautiful peninsula, I've looked
Occupation
Electrician
Generally the question to be answered is: Do you make your own schedule, or not? If I'm a legitimate sub to an EC, all he does is tell me when the work has to get done by, then I'm free to plan as I wish. If he says, "You have to be there by 0700 all next week", then I'm not a sub, I'm an employee.

Another question is who owns the tools the 'sub-contractor' is using? Not just a bag of hand tools. I mean the ladders, lifts, large benders, knock out sets, etc.

A real sub-contractor will have all their own tools. Or rentals. They shouldn't be using their contractee's tools.
 

iwire

Moderator
Staff member
Location
Massachusetts
Another question is who owns the tools the 'sub-contractor' is using? Not just a bag of hand tools. I mean the ladders, lifts, large benders, knock out sets, etc.

A real sub-contractor will have all their own tools. Or rentals. They shouldn't be using their contractee's tools.

:thumbsup:

Here is what I find at the IRS

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?

Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.
 

just the cowboy

Inactive, Email Never Verified
Location
newburgh,ny
Hard times

Hard times

You will go thru some hard times, DO NOT let it interfere with your family life, and pay all house bills FIRST. I found this out the hard way.
 
I read earlier threads about LLC's and scorp great advice. I am about to start a business doing 95% resi ranging from 2500 sqft to 12,000 in Texas. I will have one employee but paying him as a sub contracted. I plan to keep it just him and I as long as possible. Of course just like any company doing anything I want to grow so I know that my company may change as the years pass in terms of inc, llc, etc. With the parameters I have described would I be better off as sole proprietor, dba, llc. Im lost when it comes to all this as im sure all are in the beginning. I however am working with VERY tight funds and hoping the great people here can give advice from wise years of experiences. Any advice is greatly appreciated

Generally you should form an LLC or S-corp if you are in this line of work. If you haven't noticed, the tax code in the US is very preferential for corporations, its just the way it is. If you want to take one for the team and give more money to uncle sam and be a sole proprietor, feel free ;) Talk to a tax professional about which one would be better for your situation. These entities are also great for several-man outfits because you can all be members/officers of the entity, then there are no employees, easier payroll, and (probably) no unemployment and workers comp insurance (you can still pay into these if you choose). A good accountant can legally get you out of a good chunk of the self employment tax as well.

As others have said, be careful about 1099 people who are not really subcontractors. I know this is very common practice, but my accountant says IRS is cracking down on this.
 

James L

Senior Member
Location
Kansas Cty, Mo, USA
Occupation
Electrician
My very first advice is that if you are working with very tight funds do not quit your day job.
The vast majority of startup businesses fail and the biggest cause of failure is not having enough money to carry through until it becomes profitable.
Every business that fails, does so for the same reason - undercapitalization

I learned that in a sales class :cool:


But for real, to the OP:

How much money you bring in, how much you spend, how long it takes to get paid, etc. all contribute to capital issues

Wiring houses up to 12,000 square feet isn't something a guy's gonna do in a few days and get paid by the end of the week.

You need some money stashed, good credit, and some solid business advice from a contractor's group or equivalent. And tax advice.

I think a lot of undercapitalization begins at tax time
 
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