Here's another thread that might help anyone get into this business and do it right.
Hi Mike,
My name is Kate Le from Leesburg, VA. Bob Gallner gave me your name as reference for DVDNow; he also gave me your blogsite which I've read with much interest. Thank you for setting that up. My brother Tony and I have ordered 2 machines and are in process of securing locations and getting the ball rolling on all the other fun start-up tasks. I do have a couple of questions that I hope you can answer for me. They relate to choosing the appropriate business entity for the DVD rental business.
I have done some research and have come to find that no one business entity is perfect. I am debating between an S-Corp and LLC at this point. I was wondering if you can give some insight on how you decided upon which entity to use. Also, do you pay yourself a salary from your entity? If so, did you come across something that helps determine what a "reasonable" salary would be for this business?
Any advice you can give would be greatly appreciated!
Thanks and regards,
Kate
Tuesday, March 10, 2009
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4 comments:
Hi Kate,
We actually sought out a tax attorney and he helped us determine which business entity to create. We went to the attorney with our business plan and visited with him. We are an S-corp. I know it has a little more paperwork than an LLC, but is has served us pretty well so far. I honestly can’t remember why we chose it over an LLC at this point. I think we just went with his advice. Our tax accountant thought it was OK, too.
Regarding the salary portion, we were in operation just the last six months of 2007. We didn’t pay us any salaries that year. Our tax accountant said that would be OK in the startup year, but that we would need to pay us salaries out of the business in 2008. I waited until the last quarter of 2008 so I didn’t have to do the quarterly payroll tax filings until then. I have seen things on the internet where different sites give examples of how to calculate adequate compensation, but I just really did what we could afford. I think we paid a total of $2,750 in salaries to Mike and me for 2008. Our accountant said that was OK, and I think he’s really good, so I trust him. We will need to up it, though, as we continue with the business. I’m not sure about the LLC, but the reason we have to pay the salaries is so that we aren’t getting out of paying the FICA taxes since we are the owners/ officers of the corp. The IRS would look at it as us doing the work for free for the business and no FICA taxes being paid on our time. I’m currently looking at some sort of salary schedule for us.
I remember looking around online and doing research initially, too. If you have time, I really do suggest finding a good tax attorney. I think that would clear a lot up for you. We then paid our attorney about $500 and his office did all the paperwork with the Federal and State governments. All we really had to do was sign our names. It was nice.
Welcome aboard to the business!
Let me know if I can give you any more info.
Michelle
http://readydvd.com
Hey Kate,
I am currently operating under a S corp, same as Mike. With my current day job I am a independent contractor. About 3 years ago my CPA told me to incorporate myself to safe a lot more money on taxes. The two main saving options are with a S corp you will only have to pay half of Social Security tax. As a independent contractor I paid 15% to social security, but a business on the other hand only pays half of that 7.5% Also there is a FICA taxes you have to figure out, I am not up to date on those. When I talked to my tax professional about starting this business, he told from a tax perspective a S Corp would be the best option again, so I currently just do business under my S Corp that I established 3 years ago. I pay all my bills out of business bank account, and at the end of the year we get together and I pay myself so much and pay taxes on it, like Social Security, Unemployment tax, and FICA tax. It really gets confusing after a while. I strongly suggest you go see a tax and law specialist. They will be able to answer all your questions about taxes and also answer your questions of liablity. I think a tax attorney would be best to consult like what Mike did. I just used my CPA because he worked 11 years for the IRS and specializes in independant contractors and businesses. I hope this helps and good luck in your ventures.
Kyle B.
I registered as an S-Corp but now wish I hadn't. I'm thinking of re-registering as an LLC and then filing my taxes as a sole-proprietor. Then I won't need a tax accountant or have to do the extra paperwork.
Can anyone be more specific regarding the tax savings that the S-Corp is supposed to provide?
Dana Cloud
Michelle and I talked to a Tax attorney and our Tax accountant. They both suggested that we do it as an S-corp. We received quite a bit of money back from this biz doing it as an S corp. Any particular reason you are rethinking other than paperwork?
Sincerely,
Mike Weiland
http://readydvd.com
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