Any Business Gurus Here? Need Advice.

[freemonkey]

I need some advice. I'm thinking of taking over the company I work for. Right now its not hugely profitable and I don't know that its so much about the money (although money would be nice) for me. I'm really just looking for total independence, more control over my future and the feeling of ownership.

My partner/boss guy will let me take it, but thinks I should incorporate (this business exists under a small corporation of a couple other small businesses he owns). His reasoning is that I should do it as a protective measure, and I get that. But how necessary is that? What are the other benefits of this?

[LadyShea]

Always incorporate. As an individual I would do an LLC. It heps with your taxes to keep your personal and business money separate. You can pay some expenses out of the business too. Get with a good tax guy and he should be able to run down all the can/cannot dos for ya.

[freemonkey]

Thanks! :super:

[viscousmemories]

I've gone the LLC route before. Didn't stick with it long enough to matter.

At the time I discovered that the Small Business Adminstration (http://www.sba.gov/starting_business/index.html) has a tremendous amount of useful information about everything to do with running your own business.

Good luck! :)

[xouper]

freemonkey: I'm really just looking for total independence, more control over my future and the feeling of ownership.
I gotta tell you a cute story about a friend of mine who owns a successful business.

One of the things you'll hear in social settings when people find out you own a business, especially if you drive expensive cars like my friend, is people will sometimes say, "It must be nice". In one sense it is, of course, but also, those people obviously never owned a business to know what it takes to get there. :)

Anyway, that topic comes up once in a while in our converstions and we laugh over some recent incident where someone said to him, "It must be nice." He finds that comment somewhat irritating and I fully sympathize with him, since I have seen the personal sacrifices he's made to get where he is.

One day, I was at his place of business after-hours and he was in the back fixing a toilet. Here was a millionaire laying on the floor of the bathroom making an emergency repair on the toilet. He looked up at my arrival and grunted. In my best mocking manner, I said, "Are you the owner? It must be nice." He busted out laughing. Made his day. :)

Sure, the independence is very nice. But as the owner, everything that goes wrong is also, by definition, your responsibility, even when it's supposed to be someone else's. Not everyone can handle that trade-off and I have much respect for those who do it.

[xouper]

At the time I discovered that the Small Business Adminstration (http://www.sba.gov/starting_business/index.html) has a tremendous amount of useful information about everything to do with running your own business.
And don't forget SCORE: http://www.score.org/

[viscousmemories]

And don't forget SCORE: http://www.score.org/
Good point. SCORE is cool too.

I love that story about your friend. It reminds me that when I was visiting Ann Arbor around Thanksgiving I went to Amer's (a deli where I used to work 10+ years ago) and saw Amer busily reupholstering the booth benches. After he put the last one in place he came over to say "Hi" and chat with me, and while doing so he noticed yet another bench seat was torn. :doh:

[LadyShea]

Freemonkey, what kid of business is it? Does it come with a building/storefront? Will you need to do advertising?

[freemonkey]

That "must ne nice" story is great. People always think the grass is greener....

This business is very small, I work from my home and intend to keep it that way. I'm a printer, I have some core clients... some work is bread and butter type stuff, other work is pain-in-the-ass but I've-built-a-reputation-for-doing-it stuff and some of it is gravy.

I want to do more work of the first kind, to get more $$$, so I can stop doing the second kind (which is really a waste of my time and resources if I can get the easier, high profit work), print & sell more of my own art (or not art) and thereby enjoy more of the gravy. Does any of that make sense?

My boss leaves me alone, for the most part, though he threatens to learn Photoshop and come work with me. But if I tell him my ideas he questions them, whether its a good idea or a bad one. I want to try some things, but don't want to go into big committee mode to get permission, or feel badly for someone else if it doesn't work out. I want to upgrade equipment. I also don't know that he's taken best advantage of tax stuff. I'm not a high powered business person, either, and that's not my goal. I just want to make some changes, make a better living and have more fun with it.

We've talked about this, he's more than willing to let me take everything, because really, I am the business. The printer was paid for by the sweat of my brow, as it were. Its the coming up with the money for incorporation, plus attorney fees if I need a lawyer to do that work, that is making me a little cautious right now. I'm told it'll run close to $2000 to do that. I ain't got it, because......

I've got an awful lot else going on in my life right now, some of it completely out of my control. But if I can maintain an even keel, work a little less at more profitable things and bring just a couple of my ideas to fruition, I'll be better off.

So, I was just wondering how big a deal it is to incorporate, is it OK to wait, what risks to I take by not doing it.....? In my reading, I see that its important for me to do it, so I'll just have to suck it up, I guess. Or wait. I don't know. :shrug:

[freemonkey]

Oh, and thanks for the reminder about the SBA. I've never heard of SCORE, so thanks for that, too. I'm aware that there are business advantages for women, as well.

[xouper]

freemonkey: Oh, and thanks for the reminder about the SBA. I've never heard of SCORE, so thanks for that, too. I'm aware that there are business advantages for women, as well.
If there's a SCORE office near you, I recommmend you go in and ask your question about whether you should incorporate. You will get to discuss your situation with an actual live person.

Based only on what little you've said so far, and especially if you have no employees, I would hesitate to recommend incorporating. It may simply not be cost effective for your situation. If you are incoprorating for the liability protection, beware that it will not always protect you. For example, if you get an equipment loan, the bank may ask you to guarantee it personally, which defeats the corporate veil.

Based on what you've explained so far, it does not seem to me that you need the liability protection of incorporating. These are just my thoughts, and they may not apply to your situation, since I only have a superficial understanding of it.

Also, if you are working at home, and you own your home, beware of the downside of taking a tax deduction for your home office. If you are renting, then the following doesn't apply. But if you own your home and you declare part of it to be for business use, then when you sell it, that part of your home will not be eligible for capital gains deferment into the next house you buy. For example, if you designate ten percent of your home for business use, and then you sell your house, ten percent of the capital gains will immediately be taxable that year, even if you buy another house and roll over the capital gains on the other 90 percent.

Just something to keep in mind as you do your financial planning, if you weren't already aware of it.

There's another gotcha regarding home office decuctions. If the IRS disallows your home office deduction (or some part of it), and there are many loopholes for them to nail you, that will not cancel the capital gains liability when you sell the house. For example, and you may already have encountered this, if you list a computer asset in your home office and you declare that it is not 100 percent office use only, then you may lose some of your deduction. The IRS can be quite picky about home office deductions. This is where incorporating may have a financial advantage.

I am not an expert on these matters. I am merely offering some observations that may be easily overlooked. Whether they apply to your situation, I do not have enough information to say.

Anyway, best wishes to you in your venture. It sounds like you will do well on your own. :)

[LadyShea]

There are business loans available for women from the SBA to upgrade your equipment and such, and you DO NOT need a lawyer to incorporate. You simply fill out some forms and file them, the filing fee is usually a couple hundred dollars at most.

I have helped incorporate 6 companies here in Vegas, it is easy. I am sure your state has the forms right online for you, or can send you the package.

I recommend incorporating so you can run expenses through for your taxes, not the liability protection so much. Say for instance you buy a new car/truck for deliveries, you can buy it under the coporation and it is a legitimate business expense for tax purposes, yet you get the personal use benefit.

[freemonkey]

There are business loans available for women from the SBA to upgrade your equipment and such, and you DO NOT need a lawyer to incorporate. You simply fill out some forms and file them, the filing fee is usually a couple hundred dollars at most.
I'll look that up today, then.

I recommend incorporating so you can run expenses through for your taxes, not the liability protection so much. Say for instance you buy a new car/truck for deliveries, you can buy it under the coporation and it is a legitimate business expense for tax purposes, yet you get the personal use benefit.
A vehicle is one of the pressing needs I spoke of. Mine's dead, so I have use of one only every other day right now. We're going to try to get another in the next few weeks, too soon for the expense thing, maybe, though. :(

[xouper]

LadyShea: ... you DO NOT need a lawyer to incorporate. You simply fill out some forms and file them, the filing fee is usually a couple hundred dollars at most.
I incorporated in Illinois without an attorney, so I can personally confirm it can be done that way.


I recommend incorporating so you can run expenses through for your taxes, not the liability protection so much. Say for instance you buy a new car/truck for deliveries, you can buy it under the coporation and it is a legitimate business expense for tax purposes, yet you get the personal use benefit.
That's a good point too.

How you get money out of a corporation into your personal checking account is another story, though. If you don't do it right, you can end up paying more total taxes by being incorporated.

Rather than guessing (even educated guessing) at the financial consequences of incorporating or not, I recommend comparing the financial projections both ways. And by that I mean fill out the tax forms with projected numbers and see which leaves you paying less tax overall. I assume it goes without saying that with a corporation, you have two returns to file, your presonal return and the corporation's, and the total tax due is the sum of both returns. If you do it wrongly, that total tax can exceed the tax you would have paid as a sole proprieter. I assume it also goes without saying that the form of corporation you choose (for example, subchapter S perhaps) also affects your total tax liability.

[xouper]

LadyShea: I recommend incorporating so you can run expenses through for your taxes, not the liability protection so much. Say for instance you buy a new car/truck for deliveries, you can buy it under the coporation and it is a legitimate business expense for tax purposes, yet you get the personal use benefit.
I forgot to add, if you (the employee) use the company car for more than what is referred to as "de minimus" personal use, then the corporation is required to include the value of that benefit on the employee's W-2. If you do it wrongly, there may be no net tax advantage to being incorporated. In other words, if you regularly use the company car for all your personal needs such as shopping or for personal travel, vacations, etc. then the IRS considers that taxable income to the employee. Just something to consider in your financial planning. :)