Hey guys, I am having a really difficult time here. I am starting my Window Cleaning business up this spring, but I want to get established now. For the first year I want to work on my own without employees so I can get the required experience and build up some capital. Now if I am just starting off my business what is the best way to go? Should I go LLC or S-Corp?
What type of business do you have and why do you find it to be better than the other types? I have ruled out Sole-Proprietor. I have done some research on both but just can’t make the final decision on my own. I figure it’s better to ask the guys who are already there and who know the pros and the cons of each through experience. So which is it LLC or S-Corp? Thanks
LLC is cheaper i believe. I am a sole prop. I see no reason as a new biz to go with a corp. as the biz grows you can change. Why have you ruled out sole prop?
For me, the money was better spent on tools and insurance. Why do you feel you need to incorporate?
Well the main reason why I ruled out Sole Prop. was because of the liability. I don’t want my personal assets to be at stake. Am I wrong for thinking that?
Well the main reason why I ruled out Sole Prop. was because of the liability. I don’t want my personal assets to be at stake. Am I wrong for thinking that?[/QUOTE]
Depends on the state you live in. Check your local laws. Get liability insurance of at least $1,000,000 and commercial car insurance. This will protect you as a sol prop pretty well. I will eventually be a corp but I don’t see the point right now for me, maybe I will in future. But check your laws.
It’s probably different from state to state, but it’s less than $100 for any type of corporation, LLC and S-Corp included here [Indiana.]
Just takes a simple form. Mine is setup as an s-corp, but that’s because it made more sense for how I like to run the business financially. The liability protection is what’s important, as you mentioned, so either will do.
Well with good insurance that should not be an issue. It covers you for liability, damage and law suits etc. i would not tell you not to get an LLC. Some on this forum will recommend it. Im sure others will chime in. As you grow and have employees, liability raises. Also depends on your assets. You cant go wrong by incorp but for me its not needed at this time. Personal call.
This information is all very good, please continue giving advice. The more the details the better. I feel that this thread will also help many new ones starting off in the business. Perhaps we can have a Pros and Cons of each type? Btw amazing response times =]
You may also want to look at the C-Corp and a self directed 401K. Maybe not for the present time but for the future. As I understand it you can (once set up) borrow your own money with no interest or payback requirements other than it must be paid back before you exit the company. This is or coarse assuming that one has retirement money in the first place. All types of retirement except for a Roth IRA can be rolled over to a self directed 401K. It also allows you to make much larger contributions to your retirement as compared to individual IRA plans. The other benefit is that you have a line of credit with yourself so if you needed to borrow from a bank, buy another business, buy a building or even rent a building etc. the anount of dept showing for your company is less or even reduced. You are a better credit risk because you show no dept in relation to the loan to your company. You can have this all set up and pull from it only when you need it as an emergency or use it to grow your business. Of coarse you should check this out with an accountant first to get all the details.
[FONT=arial]Setting up a C-corp for your business at this stage is a complete waste of money and time. If anything, possibly an S-corp makes sense. And a self-directed 401k (in which the author probably means a Solo 401k that’s available only to business owners) would allow you to contribute higher amounts into it then a Traditional or Roth IRA, but it comes with big fees that the company (you) would have to pay out of pocket for record keeping. [/FONT]
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[FONT=arial]Borrowing money is a terrible idea from any retirement plan … and that “other than it must be paid back before you exit the company” is a big deal. You can get whacked upwards of 30% of the borrowed amount if its not paid back in full within 60 days of leaving the company. Plus any time you borrow the money is time that you’re not invested in the market … and with the volatility of today’s market, missing one or two big up days could make a huge impact on your annual return. [/FONT]
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[FONT=arial]Self-directed 401ks (which, contrasted to Solo 401ks, are available to anyone, not just biz owners) are expensive. The only upside of them is you’re able to hold real estate within in them… but even when you do that, you can’t then deduct from your taxes usual things such as interest payments, improvements made, etc wince it’s already in a tax-favored account. [/FONT]
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[FONT=arial]And using any invested money as your emergency fund is asinine. Why would you want to take any amount of risk with your emergency fund? Park it in an FDIC insured money market, deal with the low interest rate, and feel the peace of knowing nothing can happen to that money. 401ks. Roths IRAs, etc are where you want to park your long term money (where you can afford to take risk with it).
I was a sole prop for 10 years, then switched to llc, advice from my cpa and an atty friend,because of liability, keeping the company separate from my personal assets, i think was the reason.
Beginner, Asking window cleaners a question that only accountant’s and lawyers are qualified to answer will get you a lot of opinions and potentially waist a lot of your time. Everyone has an Opinion, and you need facts. This should be a decision that you make only after you talk to both qualified professionals. If you are looking at building a business for the long-term the investment in professional fees is definitely worth the money.
But since you are asking for opinions here is mine. There are 2 main reasons why you would want to Incorporate. Liability protection, creating a separate entity, and tax benefits. Below I have outlined some of the benefits of the different options.
Sole Prop.
The only reason that you would want to do a Sole Prop. is because you want to save the $200 or so dollars that it may cost you to incorporate. Not a good reason if you are thinking long-term. It is the most risky(zero protection against a law suit where they could target your personal assets.) It also has the least amount of tax benefits. Sole Prop gets taxed on the Gross, where as Corporation gets taxed on the Net(this is one the main benefits of being a business owner, please take advantage of this.)
LLC
An LLC is similar to a Sole Prop. However, it is a quick and simple way for you to get the liability protection by creating a separate entity, that a Sole Prop. lacks. This is a step up that can be done online. Very quick and simple.
3… S Corp.
It is my understanding that a S-Corp is the best option for a business that expects to have a lot of payroll. If you are planning on building a team and having employee’s not sub-contractors do the work, then this is the entity for you. The S-Corp helps you to avoid double taxation on your payroll expenses, with exception of the amount of payroll that you pay yourself. This can also be done online fairly easily. This is the set-up that I have chosen in my window cleaning business.
Again, before you make any decisions consult a profession on these matters. Good luck.
Good advice so far. Yes, you should speak with your own CPA.
I switched from a LLC to S-corp this past year. With an LLC any money left in the company’s bank on 12/31 I was personally taxed on. Made it hard to keep money around to grow or for the slow season.
Yes the s-corp tax filing cost a little more, I heard several hundred more, but just got my bill and it was $50 more than the LLC bill I got for years.
I know many people operating under a sole-p. Yes money issues are easier and yes their cars, homes and childrens college funds are at risk
Generate some money first as a Sole Prop, if you grow to a level where it looks to be substantial then consider LLC or S-Corp. If you are starting out hitting store fronts and bucket bobbing being an LLC wont be worth a hill of beans
Hey guys I like all the suggestions. Once again I am sure this thread will benefit many of us new guys joining the business. Of course everyone has their preference, and I think it is best to show the pros and cons of all the business types. All the advice no doubt has helped me become more knowledgeable regarding these business types. Thank you for your advice/opinions and feel free to continue responding to the thread.
