LLC, complicated?

OKCarpenterOKCarpenter subscriber Posts: 1
edited December 2008 in Business Planning
We hired an accountant, (actually we eventually bent to their constant phone calls and pleas for business) who talked us into forming our sole proprietorship into a Subchapter S.  But it seems they are costing us more than our self employment taxes, so we`re essentially not saving any money and the business structure is a lot more complicated and time consuming.
 
If we want to avoid the liability that comes with a sole prop but don`t want the extra complexity and cost associated with a Subchapter S, would converting over to an LLC make sense?
 
Is it necessary to hire an accountant for taxes for an LLC?  Is it too complicated for a non-accountant to handle?
 
Any advice would be greatly appreciated.
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Comments

  • robertjrobertj Tampa Bay, Floridasubscriber Posts: 0 Member


    Unfortunately, converting from a Corporation to an LLC can be somewhat "tricky" because of the different tax laws.
     
    Is the "they" that is costing you more than your self employment tax - the accountant?
    In what State did you set up your S Corp?
    Is that your home state?
  • OKCarpenterOKCarpenter subscriber Posts: 1
    Yes, they = accountant
     
    Oklahoma, home state.
  • OKCarpenterOKCarpenter subscriber Posts: 1
    As you can see I`m wanting something as simple as possible with the lowest cost. 
     
    There`s only two of us that run the company, one handles the employees and managing the job completion and I run the office, which means I handle marketing, bookkeeping, customer requests, invoicing, kitchen design, purchase orders, etc.
     
    This is a relatively small cabinet business with sales less than $300,000 and like most small businesses we don`t have a lot of spare change.
     
     
     
     
  • robertjrobertj Tampa Bay, Floridasubscriber Posts: 0 Member
    Since the Oklahoma web site gives no information - I can`t find out about annual fees for the 2 entities.
     
    It`s often a bit more expensive to set up an LLC because of the need to create an operating agreement.
     
    However, to maintain records and file tax information should be about the same.
     
    Consider "interviewing" other firms who can meet your needs before you change the entity.
  • robertjrobertj Tampa Bay, Floridasubscriber Posts: 0 Member

    As you can see I`m wanting something as simple as possible with the lowest cost.   There`s only two of us that run the company, one handles the employees and managing the job completion and I run the office, which means I handle marketing, bookkeeping, customer requests, invoicing, kitchen design, purchase orders, etc. This is a relatively small cabinet business with sales less than $300,000 and like most small businesses we don`t have a lot of spare change.  
     How much do you think you can save by changing structure?
  • OKCarpenterOKCarpenter subscriber Posts: 1
    We pay $175 per month for "bookkeeping" which I do anyways but they look over my QB entries and then produce a folder with a spiffy cover (it simply just tells us what we already know or could know by using our QB reports).  And then at the end of the year we pay $950 for the end of year reports and for the upcoming taxes. 
     
    Our accountant told us that we would be better off if we paid them for monthly bookkeeping so that it would be easier on them come tax time.  So essentially we`re paying about $3,000 for tax prep. 
     
    Is this reasonable?  Is a year round accountant necessary for yearly taxes?
     
     
  • OKCarpenterOKCarpenter subscriber Posts: 1
    Our self employment taxes have been about $2,000.
  • robertjrobertj Tampa Bay, Floridasubscriber Posts: 0 Member
    Our self employment taxes have been about $2,000.

     
    1.Since you are being paid as an employee of a corporation - you shouldn`t have self employment tax.
     
    2. The corporation is responsible for paying their share of "employment taxes" (FICO and medicare) for all of your employees including you.
     
    Again, I suggest you interview other accounting types.  I can give you the name of a good CPA - but he is in California.
     
     
  • SlowCookerMateSlowCookerMate subscriber Posts: 1
    OK
    As a former tax practioner, you really don`t need monthly financial statements prepared by a CPA.  If you are using QB and you don`t have any transactions that are "out of the ordinary", you will be just fine doing the financial statements yourself.  It is a good idea to review the reports you can get out of QB on a monthly basis to manage your business effectively.
     
    I would not recommend doing the tax return yourself because there are a lot of rules that, if not followed correctly, could cost you money.
     
    I did not look up how OK taxes LLC vs. Corps.  Every state is different and you should consider this before deciding what type of entity to operate under or restruct to.  TX treats LLC and Corps the same but CA taxes them substantially different.  Most of the time, it is not beneficial to change the structure of a company (corp or LLC) once it is set up.
     
    Best of luck.
  • ABCPAYABCPAY subscriber Posts: 0
    An LLC makes absolute sense.  I would also suggest you retain a reputable Payroll Company who will charge far less then an accountant and produce the documents and pay the appropriate taxes that are due each pay period and quarterly.  Our service utilizes a simplified pricing structure which includes ALL tax preparation, filing and payments.  For a company your size you are looking at a cost under $20/pay period for the all-inclusive product.
  • tonehedgetonehedge subscriber Posts: 0
  • gsamadgsamad subscriber Posts: 2 Member
    Sorry, but I can`t help with the LLC vs S Corp question, but I can provide some input on your S corp.
    I, too, have an S corp, use QuickBooks, and have a CPA.  If you know what you`re doing and are using QuickBooks correctly, you should be able to really cut down on what you pay the CPA.  If you have employees and need to do monthly payroll and such, you can either do it yourself or pay a payroll service to do it.  As long as you are appropriately feeding the info into QuickBooks, though, there is no reason to pay the CPA monthly to "make it easier at the end of the year."  That`s pure bunk.
    I pay my CPA to do one payroll a year for me (I don`t have employees, so this is probably different than your needs), then I just email him my QuickBooks file at the end of the year and I pay him something like $700 to do the corporate tax return, K-1 forms, etc.  In fact, I`m pretty sure he just has his secretary/bookkeeper import the data from QuickBooks and do most of the work, then he reviews it.  I think it`s worth it for this end-of-the-year work, but no way would I pay a monthly fee to them unless they were actually producing a product that you need monthly, such as payroll.
    You don`t need monthly financial results from a CPA, just use QuickBooks.
    In summary, my total yearly costs for the CPA for tax returns and payroll are a little over $1,000.  That`s all you should have to pay unless you are paying them for monthly payroll or are just learning and need them to do a lot of handholding for you for the first year or two.  If you`re already doing the work in QuickBooks, call around and ask the CPAs on the phone if they will use your QuickBooks file to prepare your taxes.  If they say they "need to enter the data into their own system", hang up quickly and call the next guy!
      Gary
  • OKCarpenterOKCarpenter subscriber Posts: 1
    Thank you all for your advice and insight.  You`ve been incredibly helpful.
  • DragginbuttDragginbutt subscriber Posts: 0
    I find you have several issues here.  As others have stated, each state is a little different and you need to look into that.   As for your Accountant fees.  I`d have to say you need to feel comfortable that they are providing you a credible service for a fair price.  On the surface, it might seem to an outsider that you may be shelling out more than you should be.  You have to decide that.
     
    As far as LLC versus an S corp... the LLC is definately less complicated, and with it`s pass through profits, it simplifies the taxes at the end of the year.  If you fully understand all the rules of an S corp, the LLC will be a snap.  
  • thetaxdudethetaxdude subscriber Posts: 0
    Setting up an LLC really doesn`t have a tax advantage because it`s considered a disregarded entity for tax purposes.  What does this mean?  LLCs do not have it`s own tax form or return for tax filing purposes.  An LLC can be taxed as a sole proprietorship, partnership, corporation or S corporation.  When an LLC has a single member (one owner), its tax status automatically defaults to filing as a sole proprietorship.  When an LLC has more than one member, it defaults to being treated as a partnership for filing purposes.  In either case, the LLC can elect to be treated as a corporation.  It can further elect to be treated as a S corporation.  This flexibility is the only significant tax benefit afforded an LLC.
     
    Most businesses choose to incorporate or organize an LLC to shield its owners from liabilities and risk of their businesses.  When you chose to incorporate, hopefully it was shield yourself in the same manner.  Incorporating to avoid self employment tax has its own risks.  The IRS has been aggressive and successful in their audits of S corporations when the shareholder/employees are not taking "reasonable compensation".  Assuming you were taking what the IRS would argue as "reasonable compensation", you would be paying as much in Social Security and Medicare taxes as you were paying in self employment tax. 
     
    There is no doubt you would incur higher accounting and tax preparation fees if you were required to file both a personal and corporate tax return.  Corporate tax returns tend to require more information than what would be reported on a Schedule C.  No matter the type of business entity you employ, the business is required to maintain a set of books.  If you are using QuickBooks, you are well on you way to meeting this requirement.
     
    Most of my small business clients use QuickBooks at my request.  Some of my clients do a good job using QuickBooks and others leave something to be desired.  I will review their QuickBooks files and make any changes which need to be made to their books.  Depending on factors like size of the client and their competence in using QuickBooks, the number of times I review their files will vary.  Clearly the more times I need to review and correct, the more fees my client incurs.  The point is, my clients have control over the amount of fees they pay me.
     
    Beyond the recordkeeping issues, you were wondering if an accountant was needed to prepare your tax returns if you chose to reorganize your business as an LLC.  I am going to say yes, but not because of the LLC.  I am saying yes because most people (even the brightest) shouldn`t be preparing their own tax returns.  Unless you deal with tax issues on a day to day basis, you are at a disadvantage when it comes to the nuances of the Internal Revenue Code and keeping current with its changes.  I can appreciate wanting to save money where ever you can, but not having a good tax pro will cost you in the long run.  I`m not saying that because I`m a tax pro, but because of the mistakes I`ve seen made by non-tax professionals or lesser qualified ones.
     
    The amount you will pay a good tax pro on annual basis will depend on a number of factors.  Some of these factors include:  experience of the tax pro, their investment in continuing education, their investment on tax research services, geography, how much work needs to be done.  Are you paying too much?  I`m not sure.  Do you really need to have monthly QuickBooks review?  Couldn`t this be done on a quarterly or annual basis?
     
     
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