My accountant is advising me to incorporate. She says there are alot of +'s and no -'s. What do you think? Good idea or not for the small sign shop. [EMAIL]signsbydave@compuserve.com
[ April 15, 2002, 10:04 PM: Message edited by: David Kilgore ]
Posted by Jerry Morrissey (Member # 203) on :
Yes, this protects your personal asset in case of a unforseen problem (bankruptcy, car accident in which the company vehicle was used, accident by an employee that injured them or another person, a sign falling on someone).
Plus my CPA says corporations are much less likely to get audited when compared to sole proprietors or partnerships.
Your accountant is giving you good advice take it,
Posted by bronzeo (Member # 1408) on :
Liabilities are at least more limited under incorporations. It does not keep anyone from sueing you personally for an accident caused by falling signs. "Piercing the Corporate Veil" is quite common on liability issues and esspecially in small corps. It has become an increasingly large reason to give in on the idea of corporate protection. Their are yearly fees and the initial setup fees by an attourney or CPA. This should be around 500.00 or less. I have 3 corps. If you go this route, choose subchapter S, which has to be applied for right after your corporation is born. One real big savings for you and the reason I incorporated; You can take a reasonable small salary and all other profits can be taken care of as dividends. A passive income the will save you 13.65% on those figures. Lets say, it is 40,000.00 a year in dividends. You have saved 5460.00 in social security payments alone, and there are other savings such as liablity isurance on payroll, and unemployment. In all but 13 states you will have to pay unemployement on yourself as an employee of the corp. You will have to file 2 income taxes, but as an S corp, will pay only once on the same money (this is why you must apply for S corp status) Basically the SS savings is the biggie for us. E-mail me for specifics, and I will try to answer them for you, as this could go on and on.
Posted by John Arnott (Member # 215) on :
David, You said that you have a smaLL business. Keep it simple. It's my opinion that some people want to sell you something you don't need. I think some people worry too much, and then there are people out there that want to "sell" you the package deal. My accountant tried the same bull$3!*. Just have fun, if it looks like a problem, skip it. John Arnott
Posted by VICTORGEORGIOU (Member # 474) on :
To expand on "Piercing the Corporate Veil" - if you incorporate, you have to conduct yourself like a corporation in order to protect the corporate veil. In the case of a one person company, that means a certain amount of record keeping for things like annual meetings. Crazy as it sounds, you still have to have an annual meeting even if you are the 100% stockholder. It is a quick meeting, however.
The capital gains thing is a bit of a two edged sword for people who are not already wealthy. It is probably to your advantage to max out social security in that most people who make it to retirement age get more out of SS than they put in. You could of course take the money and invest it yourself, but people seldom do. If you are too aggressive with cap gains over salary, the alternate minimum tax can kick in. The alternate minimum tax is designed to discourage business people from taking all their income at the lower capital gains tax rate.
I think business people need both a good tax person and a good attorney.
If you have nothing to lose, no home, no savings, etc, a corporation does not do much for you. If it blows up, you declare bankruptcy and start over.
Business owners with assets are wise to avail themselves of corporate protection, in my estimation. Vic G
Posted by Dan Sawatzky (Member # 88) on :
David
We have two corporations. But the businesses are both of a fair size and both have multiple employees. Our sign company built large very large structures in public places... ie theme parks. Our other company is a theme park... with tens of thousands coming through each year.
Our sign company now is much smaller but we will retain the corporate protection for a few years yet... to cover us on the stuff we built in the past.
The thing to consider with a corporation is the annual fees... there are papers to file each year... by the lawyer ($400) and the yearend accounting ($1000+) you may be already doing the accounting thing as a propietor
When we first went corporate we sold our prprietorship, equipment, and goodwill to our new company and applied for a capital gains excemption and in the process we saved over a $100,000 in tax which we claimed back over the next few years. That was nice.
If we a little sign company I would have second thoughts.... but if you are growing and have a good business it may be something to do. Your accountant should know yopur business good. If you feel he is giving you good advice.... go for it.
In this age of endless lawsuits it isn't a bad idea. Just make sure you have lots of insurance that covers your butt as well.
-dan
Posted by Robb Lowe (Member # 2121) on :
When I was young (20ish), I opened a hot rod shop with a partner (equally as young, but somewhat more educated in the ways of business). His mom had 'this super great accountant' who reminded you of a cheap Count Dracula to look at him. Of course he recommended we incorporate to cover our butts and all the yada yada money perks.
The covering of butt was a joke according to my lawyer. The money perks were for him - as in the endless charges for the mountains of paperwork you have that come along with being a corporation versus a sole propreitor.
For myself, I'd not do it again unless the laws have changed that made it even more attractive from a financial point of view, and as for liability, I'd go for a LLC versus a INC.
If you disband your company, change names or anything else, there is a LOT more hassle involved with a corporation status.
Before you believe an accountant, get a good lawyer's opinion. Never take the advice of someone who benefits from your decision!
Posted by David Kilgore (Member # 110) on :
I was told by the accountant that there were advantages such as renting your building and equipment back to yourself and using that for a right off.
If incorporating is so good why are there so few shops that have not done it
Dave signsbydave@compuserve.com
Posted by roger bailey (Member # 556) on :
Incorporating makes very good sence in most buiss., however finding a GOOD C.P.A. is much much more important!
For aprox.7 years I had a "not so good" C.P.A doing my bookeeping and tax planing.
I kept telling myself she didn't "feel right" for us, but I trusted her (very honest person) now, after changing 3 years ago (she sold out) I was in dismay at how much more money was staying in the co. and how much less was going to I.R.S.
The new C.P.A. is very sharp(and honest). Makes me wonder if the other one was getting a percentage from the I.R.S.
Oh well!!
BTW, we are sub chapter "s", which allows us a bit more control(like a sole propriotership but advantages of corporation).
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