Sole Prop., S-Corp, or L.L.C??

[threephase]

For those of you that own your company and have remained rather small, which direction did you go? I'm just looking for opinions based on what others have found successful.

Lastly do any of you handle all your tax work or do most prefer the CPA/bookeeper method?

Lastly, what portion of customer invoices are subject to state sales tax since you're performing a service?

Threephase

 

[jeff43222]

I have been a sole proprietor since I started. Two separate lawyers advised me that incorporation wouldn't help me with regard to shielding myself from liability.

I've done my own taxes and have not used a CPA.

Sales tax is not charged on electrical work in this state, nor do I have to charge sales tax on anything I provide to a customer, as long as I install it and don't just sell it to them.

 

[flick]

I too am a sole-proprietor.

I do my quarterly taxes and have them reviewed by a CPA, and he prepares my yearly. I'm just getting to know the extra tax and paperwork of having an employee. It looks worse than it is. On advice from my CPA, I bought Quickbooks Pro and am learning to use it.

I've been thinking of going LLC if I grow much more. We shall see.


John

 

[jeff43222]

I've been using QuickBooks, as well. It's worth it to take the time to get it set up properly. Now when tax time rolls around, all the information is right there, nice and organized. Doing my business taxes is a breeze. Paying them is another story...

 

[johnny watt]

When I asked 5 CPAs I got 5 different answers. I started with an s- corp. because the LLC was not available in NY 11 years ago. Then I started LLCs to hold business property separate from the operations. My fear was that even with a five million umbrella a jury could still award six million and I would be hurt.

At one time I knew a good reason that the LLC was inferior for operations but damned if I can remember it now.

Our state used to have taxes on s-corps before the pass through but not on the LLC so that was another reason for shielding some income in a separate LLC. Now they both have yearly fees attached so that advantage is no longer valid.

I can?t imagine why an attorney would say either of these entities wouldn?t protect you because that is exactly what they were designed to do. Sure they are not foolproof but what is? As long as you are not operating criminally and you have nominal insurance there is not much chance of ?piercing the corporate veil? in this state.

I have a CPA but I always check his work and make sure it jives with what I?ve read.

In this state capital improvements are not taxed but service and repairs are and so are materials. It?s important to mark up your materials and add tax before you give the bill incase the customer hands you a capital improvement form which leaves the contractor paying the tax on the materials.

 

[tom baker]

I went to a class on incorporation. A LLC is the simplest and it shields your personal assets. If you are a sole P then your personal assets can be at risk, you and the company are one.
Check in your yellow pages under attorneys. You may find a legal referral service for free 30 minute consult.

 

[kbsparky]

We formed an S-Corp to save on payroll taxes. That's 15.3% right off the top.

You take a salary, and then the rest of your business profits are called distributions of income, and are passed-thru directly to the share holders.

You still pay income tax on those profits, but you don't have to pay FICA or Medicare taxes on those amounts. We take that money and use it to fund IRAs.

 

[iwire]

Sales tax is not charged on electrical work in this state, nor do I have to charge sales tax on anything I provide to a customer, as long as I install it and don't just sell it to them.

Are you saying you charge the customer the same amount that you pay for an item?

Why on earth would you do that?

 

[jeff43222]

Are you saying you charge the customer the same amount that you pay for an item?

Why on earth would you do that?

No, we have markup here, too.

I pay sales tax when I buy materials, but I'm not required to charge sales tax if I install the materials. I keep my markup and don't have to send a cut to the state, as that was taken care of at the supply house.

 

[JohnE]

Are you saying you charge the customer the same amount that you pay for an item?

Why on earth would you do that?

Yes! Because the paperwork for sales tax is daunting. We used charge sales tax to our customers, but it was a colossal pia, for a small company. Not to mention if you have to go thru a sales tax audit from the state. Upon consultation with my accountant, we found that it is legal to pay sales tax upon purchasing electrical supplies, as long as the material is going to be installed in real property in MA.

So, our invoices typically read: Supply and install.....

You get my drift, right?

John

 

[JohnE]

No, we have markup here, too.

I pay sales tax when I buy materials, but I'm not required to charge sales tax if I install the materials. I keep my markup and don't have to send a cut to the state, as that was taken care of at the supply house.

To clarify, if you pay sales tax at time of purchase in MA, you can not charge more for the material than you paid.

 

[iwire]

Everyone I have worked for marks up the stock.

That is a lot of money to give away.

 

[JohnE]

Back to OP. We incorporated about 7 years ago. But even then, our attorney advised us that for a small company there is little protection from the "corporate veil". For someone starting out, I'd recommend starting as a sole proprietor. You can always incorporate in the future.

We chose S-Corp over LLC based on recommendations from both our attorney and accountant. I don't remember the reason, but it made sense at the time for our operations. Even though our attorney is an LLC, he explained why S-corp would be better for us.

 

[romexking]

You may be (legally) able to avoid paying sales tax on material if you charge by flat rate. We purchase material and pay sales tax at that time. As long as we don't itemize our invoice showing a markup on material, we don't have to pay additional sales tax on the material. If we did, we would pay sales tax only on the amount above the orginal purchase cost. Labor is not taxed here.

Rich

 

[JohnE]

You may be (legally) able to avoid paying sales tax on material if you charge by flat rate. We purchase material and pay sales tax at that time. As long as we don't itemize our invoice showing a markup on material, we don't have to pay additional sales tax on the material. If we did, we would pay sales tax only on the amount above the orginal purchase cost. Labor is not taxed here.

Rich

I was advised that if you charge more than you pay for your material, you can't pay it at time of purchase, and must charge for it and pay it at time of sale. You can't jsut pay the difference. Maybe it's different in MD.

Everything else in the post, I'd echo.

 

[kbsparky]

....Maybe it's different in MD.....

Yes, quite different in Maryland. In essence, MD does not want contractors to have resale licenses with tax collection and remittance responsibilities.

They want us to pay sales tax on all materials at the time of purchase.

Used to be, we could get materials tax-exempt, and we would then charge sales tax to the customers. Then remit it to the state. But unless you have a retail counter associated with your contracting business, this is no longer the case.

I mark up many materials 50% - 100%, and some items more. But the state does not want me dealing with collecting sales taxes. Go figure.

 

[JohnE]

Everyone I have worked for marks up the stock.

That is a lot of money to give away.

In our eyes we do mark it up. In the presentation of invioces, it doesn't read that way. I guess the "flat rate" description is somewhat accurate for what we do.

What we don't do is a T & M invoice showing prices, since if we do we must either 1. charge exactly what we paid if we pay tax at time of purchase, or 2. be exempt on purchases and charge sales tax at time of sale. And go through all the paperwork with the state each month.

As I said, we used to do the latter, but now the former.

Afain it's sort of semantics, but out invoices for T & M will read: Supply and install......

So the difference in cost is due to the install, not that we are simply marking up the product. Sort of.