LLC vs INC

[nybhh]

I was always under the impression that the best separation was to be an employee of the company and pay your salary from the company accounts. Keep anything that is business under those accounts and anything personal out of them.

I do not know how that works though since there needs to be a boss, right?

Thanks for starting this thread. This will help many ppl tremendously. Me included.

Yes.  Where a lot of small business mess up is in the early stages when the business may not have money in its bank to pay all its expenses so you pay them out of a personal account.  This may feel like a neccesity but this is how the "co-mingling" usually begins and it makes the record-keeping all but impossible for all but the most anal-rententaive of record keepers.
By far the best way to handle this is to write the business a check and then pay the expenses through the business rather than from a personal account.  For an LLC, this is called a "capital contribution" and when you take money out of the account - it is called a "capital distribution".  If you make a $5,000 capital contribution to the business so it can pay its expenses, the first $5,000 you take out afterwards isn't "salary" or income, it is just  a distribution that nets out the initial contribution and you won't owe taxes on that money, it is just a loan repayment.
Besides the legal separation, one of the main advantages of keeping things so rigorous is it keeps bookeeping and taxes so much easier.  You can simply print out a bank and credit card statements every month or so and add and subtract everything.  Deposits from clients = income, withdrawals = expenses.  Deposits from you = capital contribution, checks/withdrawals to you = capital distribution.  Easy peasy.

[Southside]

Not sure if it's the same with an LLC or not but my accountant has always made our business pay us back with interest on a schedule for any loans we made to the business, I guess it keeps it the same as if a bank were to loan the business money so it helps keep things clear.  

[Crusarius]

Thanks nybhh. Makes me feel better to know I am not crazy  

[DMcCoy]

C corp here for 19 yrs. The reason for us was financial not liability.
I cannot stress enough the need for a really good accountant.  They can all fill out forms (hopefully) and then there are ones who know what you can and should do or shouldn't.  Ask questions and if you don't get a well explained and understandable answer then you might look elsewhere. There are bright accountants that can't explain things, go too fast, or gloss over areas like they are insecure with you understanding what they do. You need to understand the working concepts if you are going to do this.

We loan the business money and have it pay us back with interest.  Charge the business rent for the areas it uses for business.  Take money out of the business as a paycheck.  We use a payroll service.  Be happy paying taxes it means you are making money.  We drain the business down at the end of the tax year by taking a bonus (personally pay taxes the business shouldn't) and then loan the money (operating loan) back and charge interest.
Get the insurance. 
Don't buy stuff you don't need.  I hear the term "write offs" like it is some source of free money, most often by non business people.  Stupid idea and a stupid mind set.  Call it expenses because that is what they are.  Keep you expenses low, don't buy stuff you don't need.

[flyboy16101]

I'm a sole proprietor operation. From what little research I did it sounded to me like others have said that llc or inc is a tax thing mostly. I would talk to your accountant to see what they say based on your situation and ask why. The big thing I was worried about was insurance. It was difficult to find a company that was able to place a portable sawmill due to it being portable. And most of the companies that would cover it normally couldn't be cause they were not licensed in PA. If you would like the number for the guy I use PM me and I'll send you his information. A lot of companies I talked to could place my account only if I was at a fixed address, so if I went to a portable job and something happened I would not be covered. The way I am covered now as a portable operation is that if I saw at the house I treat it like a I'm at a customer's location. As far as I can tell I have my insurance set high enough so that any claims will be stopped by it and not come back on me. I also have inland marine coverage on the mill because I know of a lot of issues that contractors and farmers around my area have had with vandalism. I have been told that if someone is hurt while vandalizing your equipment (i.e. they fall off of it and break a leg) you are still liable for the injury even though they were in the wrong. I don't agree with that but that's how the courts see it. I started out only wanting inland marine but because of this I also got the liability coverage.

Another thing to consider is your vehicle and if you need DOT numbers. I was worried about my personal insurance not coving the mill in an accident since it was a business. So I left my truck registered in my name but insured it through the business I was told I could do this because I am a sole proprietor. Part of the insurance problems is because I have DOT numbers so that I can legally haul my skid loader to jobs if I need it, or to cross state lines. If truck registration weight plus sawmill weight equals 10,000lbs or more and you are crossing a state line for business you need DOT numbers.

My book keeper did push the issue that I needed to keep a separate bank account for the business. I bill myself when I saw for me to keep the books cleaner.

[terrifictimbersllc]

As far as federal income tax,  a single member LLC is called a "disregarded entity" and treated the same as a sole proprietorship (it is "disregarded" for federal tax purposes).  Both file schedule C and that net income reports out on 1040 as business income.  

LLC stands for limited liability company.  Its purpose is to be a separate entity from the individual and to help separate any liability to the LLC entity.  How effective that is, and how to make it as effective as possible, surely is a topic for discussion, but I don't know of any tax advantage.

[CabinCreations]

Even if you think you will be doing only mobile sawing I'd bet you end up doing an occasional small sawing job at home

This is a great point, but say I mill a small job for a customer at my home and someone is injured. Would this be a claim for my home insurance or business insurance? I feel that this is where things can be muddy and one insurance would try to push it off to the other. I suppose if you treat it like Flyboy just described:

if I saw at the house I treat it like a I'm at a customer's location.

then it would be strictly under business insurance?

Another question, you must have an address for your business, right? If the address for the business is the same as the "customer's address" can there be conflict there still? Or can you set up your business at some "fake" address to avoid that entirely?

If any of my questions seem unnecessary, please let me know. I am just trying to get my grips on as much of this as I can and may easily be reading into some of this too much....

Flyboy - I'll take you up on your offer, a PM will be sent momentarily. Thanks for the advice on the truck DOT numbers too.

Thanks!

[flyboy16101]

My home address is set up as my office/shop. So if something were to happen in the garage I would assume that homeowners would push it off on the business insurance. I have been told that most homeowners insurances will drop you on the spot if they find out that you are operating an uninsured business from your house. I was told that by a guy who dose excavating, I have to take his word on it I never looked into it any further. But he also said that this included just parking equipment or having your office there. Regardless I don't think home owners will cover you if something were to happen.

[WV Sawmiller]

  

Even if you think you will be doing only mobile sawing I'd bet you end up doing an occasional small sawing job at home

This is a great point, but say I mill a small job for a customer at my home and someone is injured. Would this be a claim for my home insurance or business insurance? I feel that this is where things can be muddy and one insurance would try to push it off to the other. I suppose if you treat it like Flyboy just described:

I have no experience to qualify this statement but I would bet that your homeowners insurance would not cover such a claim and I would not be surprised if they dropped you shortly after asking. You can pose the question to your homeowners insurance but don't be surprised if they drop you then too.

  My photographer wife had insurance through Hartford for many years and we were considering offering photo tours in my boat on our local lake. We often take friends down there and take neat pictures of eagles, water birds, wildlife and landscape. She offers classes locally though Hobby Lobby and at home so had liability insurance for many many years. She called and asked about our proposal to see if we were covered or what changes we needed to make for coverage - basically was it feasible. Shortly thereafter they called back and canceled her policy because they looked at her website and saw our Africa and Alaska pictures and said she worked with "dangerous animals." They never asked if we had customers along or such, which we did not. We subsequently got coverage through the agent who handles my sawmill insurance.

[Southside]

WV are you sure they weren't looking at pictures of Papa Smurf when they decided she worked with "dangerous animals"?  :D

[WV Sawmiller]

Southside,

   Please remember one of the rules here on this forum is we are supposed to be nice to each other. ;) :D