I am thinking C-corp....

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I am thinking C-corp....

David Spinnenweber
Pittsburgh, PA · Member since 2010 · 6 posts · 0 votes

I have been reading here for a few months and finally needed to post (the search answers almost all my questions before i needed to post). When it comes to the different entities I am thinking that a C-corp might serve me best. I am aware that most people dont like the C-corp because of the double taxation.

In my situation, I think it would be better as I need to limit my income as much as possible. You see, I have a child support order against me for my 2yr old son. Now, before anyone thinks I am trying to get out of paying for him, and doing my duty, and I am dead beat dad, just wait. I am none of those. I am very involved in my sons life, I pay my support every month, never been late. I am actually ahead on it. I have no problem paying it, it is my responsibility, so I do as I must. However, his mother is leach on society and is getting every gov hand out she can get, and only wants more. As soon as she thinks I am making more money she files for an adjustment to the support order. Right now, I give her $500/mo.

In PA, the order is not based on a set percentage. But rather a sliding scale based on total income of both parents, and percentage of the total each parent puts in to the total, and how much of that amount should be spent on the child. In short terms, the more you make, progressively the more you pay. Its not a matter of the child needing anything, he has everything he could ever need. And i have never denied him anything he needed, and want to be in a financial position in the future to ensure that I have the ability to provide him with everything he will need.

That being said, I don't think an LLC or S-corp would be a wise decision for me as they flow through to my taxes as earnings. I don't want to rehab a few properties and have my taxes at the end of the year show 100k+ income when in fact I didn't take the money out of the company. Then when she files for adjustment, they base my payment on the income of the company leaving me with 1500/mo child support payments that I wouldnt be able to afford.

I am planning on doing a couple fix/flips, and some mobile homes, then once I build up some cash I want to buy and hold properties for passive/long term income. I figure with the C-corp, the company could hold the profits, and pay me a VERY modest part time salary while I work my current job (which maybe in jeopardy this summer as I work for a public funded transit agency). When/if I get laid off I will take a salary that will be just enough to pay my bills and do REI fulltime. (This is how it works in my head, but we'll see.) I am planning on funding the company with an initial 50k in cash.

I told you all that, to ask you this. Would a C-corp be a wise choice for me? or is there some other option I am missing?

Thanks in advance,

Dave

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    15y

    Hmmm, well, I don't know why you think your Ex's attorney won't point out that it is a closely held corporation and that you elect to keep the earnings in the corporation in order to avoid paying more in child support. If you go to court, I don't think that will wash, not that I am fmiliar with state laws in your state, but that sliding scale is pretty common here too.

    May be somone else should own the LLC (like your parents, brother os sister) and pay you a measily salary, with a golden parachute in 2018 when you take the option to buy the company.

    $500 a month for a baby is not that much really and just wait. You say he doesn't need anything, lol, not many 2 year olds do, wait til he is 8, 12, 16!

    You can also work something out with your wife, a trust for your son for example for any extra income. Your opinions of each other may change in another 5 years too.

    No, I'm not a social worker. Good luck

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  • David Spinnenweber
    OP
    Pittsburgh, PA · Member since 2010 · 6 posts · 0 votes
    15y

    Its my understanding that no matter if it is a closely held corp, it still wont matter as the corp is its own entity and I am nothing but an employee. Also, at this point she doesn't have an attorney.

    I know that kids will cost more as they get older, that is why I am trying to get my REI career going now, so that I can afford to supply him with everything he needs. I said he doesnt need anything to illustrate that I am not a dead beat dad. I dont want the mantra of a cheap, child support dodging, uncaring, dad who is trying to screw his child for his own benefit. I am the complete opposite. I just dont want to get hit with a 1500/mo child support payment because I flipped a few houses and still make 36k/yr.

    The reason I would keep the money in the corp is for future investments. Buy and hold, larger flips, etc. Not for dodging child support. When the company is doing well enough that I can afford a steady salary from it, I will have no problem paying the support order based on teh increased income from the corp. But if my support order is based on the first 2 deals and wipes out all the capital in the corp, then it was a waste of time and loss of investment. Putting me in a worse situation now as I am currently not in arrears. With a new order based on a few flips as income, the order could easily go over my current pay checks. Leaving me in a really bad spot.

    Not trying to dodge support. Trying to build a company. Unless a support order has simply ended my chances for being successful in REI......

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    15y

    Did not mean to imply you were dodging anything.

    So, if a guy claims he has an income of $1,500 a month and ten million in gold in his basement, you're suggesting that the court will not look at the ability of the guy to produce income, his assets or consider any other aspect of his financial position, just what he claims on a W-2.

    I'm not an attorney, but I've been around the block a few times. You might read that in the state statutes but you might keep reading and think about the latitude a judge has in setting your income. You can do this or that or what I suggested, but there will always be a chance that the court will cut through any smoke screen and have you pay. Best way not to get tagged in paying any suit is not making any money.

    I know a guy that had to add back depreciation to his earnings, after all, it's not a cash expense.

    That scale might look pretty expensive to you now, but if you made $150K a year, maybe you could figure out a way to suffer at that higher payment structure, it's all relative. I know it's not about you son, it's about having your ex-wife getting her hands on it. Right?

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  • David Spinnenweber
    OP
    Pittsburgh, PA · Member since 2010 · 6 posts · 0 votes
    15y

    Its about building a corp that will be able to support my family and myself. Protecting my income and the company assets from my ex is also a concern, yes. But not in a way that will prevent my son from getting what he needs. ;)

    But back to my original question, would a c-corp that pays me a simple salary be my best bet to keep my income low, and be able to reinvest the company money without it being used to figure child support?

    I don't trust anyone enough to legally have control over my money by them running the corp.

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