What is an LLC?
A limited liability Corporation. This type of entity is a flow through entity. For more complicated partnership arrangements it offers some advantages. The IRS has now allowed these types of entities to report income on a form 1120S. This is big deal. For someone who is profiting and needs a LLC (over a Subchapter S corporation) this choice of filing becomes the best of both worlds. Know that in Illinois there is a franchise fee of $250 a year which is $100 more than what a ‘regular’ corporation would pay. Don’t form an LLC when all you need is a ‘straight’ corporation.
How can someone making a profit lower his taxes?
There are many perfectly legal ethical ways to keep your taxes low. My favorite is saving on Social Security and FICA, there are also retirement plans of many sorts your business could adopt and beyond taking all your ordinary and necessary deductions there is a device called Income Splitting. If you consume everything you earn this system may not be advisable, but if you spun off part of your business, created a Sub-chapter C corporation and kept the profit level under fifty thousand you could develop a glorified savings account that would take the top most highly taxed income on your personal return and tax it at fifteen percent federal. This strategy will become more popular due to changes in the tax code that made the exit strategies easier. A meeting with us can determine what ideas are a good fit for you at this time or in the future.
Should I incorporate?
A lawyer could explain the concept of limited liability. As for taxes there are several reasons to incorporate. My favorite reason is your business is a success for a list of reasons. Some of these reasons have little to do with your personal service on a day to day basis. Of course it is not necessary to quantitate that amount, it is much easier to set a salary for yourself that is reasonable for your level of personal service. Your social security payments to you when you retire will be lower than if you had paid in more. The math in each example becomes subjective but given the choice to save the taxes now, plan a more self funded retirement most anyone profiting over forty thousand a year is a likely candidate for incorporating in a flow through entity. Most choose a Subchapter S corporation. L. L. C.s are popular but have drawbacks including higher overhead. The exception is LLCs for real estate that often is a good match. If you plan to ever share the ownership in your business greatly affects how you incorporate. Advice on this aspect is subjective.
Should I buy a car or lease a car?
Auto expenses add up. People who drive for work purposes could save money on taxes if they maintain mileage records and document their expenses. You must understand what constitutes a business mile from a commuting mile from a personal mile. Driving to and from your place of business and home is a commute not deductible. A personal mile is when you are not trying to make money at the time. If on your way to work you visit a customer or pickup supplies for your work then the distance from the place you stopped off to your place of business is deductible. There is specific advice to give you depending on whether you are a sole proprietor, employee, owner/ employee. The percentage of use affects the advice as well. The IRS loves to beat up on auto expenses, but with the proper documentation you can save and know you can defend these deductions. The subject of home office overlaps auto deductions. We look forward to talking to you about your particular situation. Everyone works differently and sorting this out is a shining example of the level of personal service you can always expect at FTKco.