s corp or LLC for business

i ve gotten a boatload of great information here on this board regarding real estate. Now I dont know where to turn to short of visiting my CPA. which is going to be costly. what im looking for is folks with real life stories/examples/advice.

ok i am a general contractor. i wish to start an s-corporation or LLC. I have no employees, officially at this moment anyhow. Can anyone help, which of the 2 am i better off with? I am a small peanuts business at this time but who knows it may take off one day.

here is what i do know. s-corp is a pass thru entity. taxes are paid on 4-15 every year along with my taxes. LLC same except not so formal/strict. seems like llc is less redtape. HELP

if you had/have a corrp now id like to know if you have any regrets with your form of corp. thanks in advance

Edited: 06/26/2010 at 09:48AM

Cain Kiser

Real Estate Investor · Champaign, Illinois

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Icon_minipost Sep 23 '09, 05:42 AM

In an LLC you will almost always pay less taxes.

You get the benefit of a partnership with the liability protection of a corporation.

Edited: 06/26/2010 at 09:48AM

Brian Levredge

SFR Investor · Long Beach, California

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Icon_minipost Sep 23 '09, 07:28 AM

I'm a General Contractor in CA as well. I hold my business in an S Corp. This is because of the pass through structure on taxes. If you are a single employee (you) company, it is the best way to go. You will still have to pay state taxes every year in CA, which is $800 min. on corporations, but that's about it.

Setting up the S Corp is an important step, but maintaining it is even more important. Make sure to stay on top of your paperwork and don't co mingle funds. Laughlin Group is a good company to handle your paperwork compliance the first year. Once you learn the ropes, you can do it yourself.

Edited: 06/26/2010 at 09:48AM

Steve L.

SFR Investor · Rancho Cucamonga, California

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Icon_minipost Sep 23 '09, 07:58 AM

Originally posted by Cain Kiser

In an LLC you will almost always pay less taxes.

You get the benefit of a partnership with the liability protection of a corporation.

LLC has additional taxes based on revenue (at least in California). You really should talk to a lawyer and accountant. Everyone's needs are unique.

Here is my setup, LLC holds rental properties (long-term), S-Corp does all operational business activities and holds title to flips. If you want to get fancy, you can setup a Land Trust for each property and make the beneficiary your LLC.

http://www.pahl-gosselin.com/the-california-llc-fee.aspx

$0 for LLCs with annual gross revenues of less then $250,000;

$900 for LLCs with annual gross revenues of at least $250,000 but less than $500,000;

$2,500 for LLCs with annual gross revenues of at least $500,000 but less than $1,000,000;

$6,000 for LLCs with annual gross revenues of at least $1,000,000 but less than $5,000,000;

$11,790 for LLCs with annual gross revenues of $5,000,000 or more.

Edited: 06/26/2010 at 09:48AM by Steve L.

Robert Daniels

Homeowner · California

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Icon_minipost Sep 23 '09, 02:20 PM

Originally posted by Brian Levredge

I'm a General Contractor in CA as well. I hold my business in an S Corp. This is because of the pass through structure on taxes. If you are a single employee (you) company, it is the best way to go. You will still have to pay state taxes every year in CA, which is $800 min. on corporations, but that's about it.

Setting up the S Corp is an important step, but maintaining it is even more important. Make sure to stay on top of your paperwork and don't co mingle funds. Laughlin Group is a good company to handle your paperwork compliance the first year. Once you learn the ropes, you can do it yourself.

Thank you all for your comments so far. Brian your business situation is the most like mine. I have been researching for a while. It appears that in CA there cannot be a single member LLC. there are work arounds for it. it is said that LLCs must pay taxes on profits whether or not they are distributed or salaried out. LLC seems the easier way to go. is it true with s corp you pay taxes only on profit leftover after paying all responsibilites? i wonder if the hassle of payroll and paying out quarterly taxes is worth it with s corp...bottom line is im lookin to cover my assets and have the best tax breaks and keep more money available for the business. like i said i am starting out small peanuts and plan on 1099'ing the help. Brian any help will be greatly appreciated. thanks Robert

Edited: 06/26/2010 at 09:49AM

Brian Levredge

SFR Investor · Long Beach, California

672 posts
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Icon_minipost Sep 24 '09, 01:09 AM

An S Corp is only taxed once. I don't pay quarterly either because on paper, I don't show a profit which is the point of having any type of Corp: to avoid tax liability. You have to pay yourself a reasonable salary and then you can take the rest as a stock distribution or dividend. I use mine to run ALL my expenses through including business trips to purchase/evaluate real estate. An S Corp does not have the flexibility of an LLC and is narrow but since you are a single employee/owner that is exactly what you want. If your company grows down the line, you can convert to a C Corp or LLC.

As an aside, CA chartered corporations are not the most bullet proof in the world regardless of entity selection. Make sure you have adequate insurance (2M) to cover your ass and stay on top of your paper work (resolutions, minutes, etc.). Otherwise your veil can be pierced pretty easily.

Edited: 06/26/2010 at 09:49AM

Steve L.

SFR Investor · Rancho Cucamonga, California

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Icon_minipost Sep 24 '09, 02:24 AM

Originally posted by R M

Thank you all for your comments so far. Brian your business situation is the most like mine. I have been researching for a while. It appears that in CA there cannot be a single member LLC. there are work arounds for it. it is said that LLCs must pay taxes on profits whether or not they are distributed or salaried out. LLC seems the easier way to go. is it true with s corp you pay taxes only on profit leftover after paying all responsibilites? i wonder if the hassle of payroll and paying out quarterly taxes is worth it with s corp...bottom line is im lookin to cover my assets and have the best tax breaks and keep more money available for the business. like i said i am starting out small peanuts and plan on 1099'ing the help. Brian any help will be greatly appreciated. thanks Robert

S-Corp and LLC are the same for tax purposes. They are "pass through" companies and their profit goes directly to your personal tax return (so you don't pay double taxes). LLCs have an additional fee based on revenue in California.

C-Corp is different and you'd run into double taxation on the profit you leave in the corp.

You can have a single member LLC, I have two of them with no problems.

Edited: 06/26/2010 at 09:49AM

Robert Daniels

Homeowner · California

30 posts
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Icon_minipost Sep 24 '09, 05:52 AM

Originally posted by Brian Levredge

An S Corp is only taxed once. I don't pay quarterly either because on paper, I don't show a profit which is the point of having any type of Corp: to avoid tax liability. You have to pay yourself a reasonable salary and then you can take the rest as a stock distribution or dividend. I use mine to run ALL my expenses through including business trips to purchase/evaluate real estate. An S Corp does not have the flexibility of an LLC and is narrow but since you are a single employee/owner that is exactly what you want. If your company grows down the line, you can convert to a C Corp or LLC.

As an aside, CA chartered corporations are not the most bullet proof in the world regardless of entity selection. Make sure you have adequate insurance (2M) to cover your ass and stay on top of your paper work (resolutions, minutes, etc.). Otherwise your veil can be pierced pretty easily.

Brian you mentioned the quarterly thing. Even tho there is nothing to pay do you still need to file something? Im worried that I may not have the know how to run a tite ship like some say. Just wondering if there is quarterly paperwork to do. Its only me basically so not much to worry about in my opinion. thanks again

Edited: 06/26/2010 at 09:49AM

Robert Daniels

Homeowner · California

30 posts
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Icon_minipost Sep 24 '09, 05:54 AM

Originally posted by Steve L.

Originally posted by R M

Thank you all for your comments so far. Brian your business situation is the most like mine. I have been researching for a while. It appears that in CA there cannot be a single member LLC. there are work arounds for it. it is said that LLCs must pay taxes on profits whether or not they are distributed or salaried out. LLC seems the easier way to go. is it true with s corp you pay taxes only on profit leftover after paying all responsibilites? i wonder if the hassle of payroll and paying out quarterly taxes is worth it with s corp...bottom line is im lookin to cover my assets and have the best tax breaks and keep more money available for the business. like i said i am starting out small peanuts and plan on 1099'ing the help. Brian any help will be greatly appreciated. thanks Robert

S-Corp and LLC are the same for tax purposes. They are "pass through" companies and their profit goes directly to your personal tax return (so you don't pay double taxes). LLCs have an additional fee based on revenue in California.

C-Corp is different and you'd run into double taxation on the profit you leave in the corp.

You can have a single member LLC, I have two of them with no problems.

Steve, the single member LLC's you mentioned, are they real estate holding LLC's or a business LLC?

Edited: 06/26/2010 at 09:49AM

Brian Levredge

SFR Investor · Long Beach, California

672 posts
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Icon_minipost Sep 24 '09, 06:18 AM

From my understanding, anyone that does not have taxes withheld is supposed to pay them quarterly. These are estimated taxes, so if you don't have earning per se, then there are no estimated taxes to pay. I have a CPA do my stuff for me but I never send in paper work short of signing my year end return. I run most stuff off Quick Books which lets me send a file to my accountant for him to work with. Easy.

Like I said earlier, if you are nervous about maintenance you should look into hiring a paperwork assistance company. Laughlin Group in Reno is the one I've used. They can even form the entity for you as well although they are little more expensive. The maintenance program will run you about $500 for the year and you will learn everything you need to do. Plus after a year, you don't really have many more resolutions, etc., to deal with as it is.

Edited: 06/26/2010 at 09:49AM