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LLC or Incorporation


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I will answer my own...

Before I even bought a machine I went  otmy Attorney had the name and the LLC put ni place.  This allowed me  to set up the Bank account and the Sams account in the company name.

The downside...(kind of) this alerted the coin counters at the State Level..they immediately sent me the bill for my $250.00 in Business entitiy tax...Welcome to Connecticut

This also put me on all of the mailing lists for any and all marketer for everything from checks to yellow pages..to...you name it

 

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  • 4 weeks later...

I set up as a LLC... Got information from a website called nolo.com. I ordered the book/software. Forms for all 50 states provided for $100. Was able to set it up myself for less than $200.. Lawyer quoted me $1500. To me it was a No Brainer.

Lee

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What is the necessity for having an LLC vs a Sole Proprietorship? In Washington it costs $175 to form an LLC plus $15 for a master business license, or I can just get a Master Business License as a sole proprietorship for $15. Is an LLC necessary?

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The main thing an LLC gives you is liability protection. Insurance gives you that too, though.

Also, with an LLC or S-Corp there are some ways to take income and not pay payroll (or self-employment in the case of an LLC) taxes.

If I was only doing vending, I would not worry about an LLC or S-Corp and just get good liability insurance.

Kevin

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  • 2 weeks later...

If I form an LLC do I still need liability ins,or if I get the insurance do I need to form the LLC? I'm starting out small and want to grow at a rather slow to moderate pace so I can learn and make sure this is something I want to persue before I have to much invested. I have 2 machines right now and may have 5-6 total by the end of the month,and my goal is 10 by the end of the year. I know if things take off like I hope they do I will have both,but starting out with just a few machines what is the absolute necessary to get started? Any advice would be helpful at this point,this section makes my head spin!

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I would not worry too much with only a few machines. See how much you like being in this business first then get some prices. T Bird Vending is a LLC. I am in the middle of getting prices now for additional liability insurance. I waited a little too long to get it but I am now.

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Insurance will protect your assets in the company (LLC) or corp (S-Corp).

With an LLC or S-Corp, no one can come after your personal assets, but the assets of the company/corp can be taken. In your case this would be machines.

So, weigh the cost of insurance (a few hundred dollars/yr) to the cost of replacing your machines and decide if it is worth it.

Also factor in (what someone else on this forum said), no one seems to have heard of a lawsuit against a bulk vendor :)

Kevin

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  • 2 months later...

The soliciting phone calls can be riduculous. I love the ones for credit card services. Once I got a bus lic the cc services calls were relentless. I kept telling them, "I only accepted quarters!!" One time I asked them can you turn a quarter into a dollar? Then I'll talk to you. After awhile I just started hanging up on them.

As far as Liability insurance. I have a 1 million dollar policy through Safeco. It is $230/year. With only 65 machines I fall into that price range. I figured for now the insurance is the best way to go for my size. California has some high fees for forming corps. Keep in mind if you do WAIT UNTILL THE 1ST OF JAN! It is not per year for the fees it is per calendar year, so you could pay for all of 2008 if you form a corp in the next three weeks. I believe that is for an S corp.

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Good point on waiting. The fees are for the calendar year, the magic date is Dec 17. Legalzoom asks you to place a note in the comments field to hold the application until then.

In CA, for a corp, the $800 franchise tax is waived for the first year. For the LLC, the same is payable within 90 days and is not waived.

As far as the liability issues, you are right, one can and should buy insurance. IMHO, I don't think it should be looked at as an alternative to incorporating. One would want to buy insurance anyway, whether sole proprietorship, corp, or LLC.

There are other benefits that need to weighed with regards to a S corp or LLC decision, among them: income tax, self-employment tax, gross receipts fees (CA), and the costs...

M

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FYI, there are no income tax issues with an S-Corp or LLC. Both are pass through entities meaning the $ made there are simply recorded as income on your 1040.

The only real advantages here are escaping *some* FICA taxes for an S-Corp and self-employment taxes for an LLC.

If you make enough money, there are some other things too (e.g., SEP-IRA) that become advantages, but for the small time vendor, the slight tax break mentioned above is it.

A corp (or company in the case of an LLC) provide the same protection as insurance does. The only difference, as I mentioned above, is that with a corp/LLC your corp/company's assets (in this case the machines) are liable. You need to weigh the cost of that vs. the cost of insurance.

Kevin

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It was my understanding that when forming a business entity you would be able to record costs and subtract your costs to only pay taxes on your net. Compared to say the paycheck you would receive from working 9 to 5, in which you are taxed on your gross. The difference in ability to grow is vast as being able to write off the cost of gas, equipment, and product before taxes means you can virtually eliminate your tax liability by reinvesting in new machines and claiming only a few dollars in retained earnings. My practice in the real world is limited, and I'm operating just off what I learned in the finance courses required to get a business degree.

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Lurtsman, you are mixing two different things.

First, you are confusing personal taxes with business taxes.

Second, you are confusing working for someone else vs. working for yourself.

You are correct in what you say if your 9-5 is working *for someone else*. But when you work for yourself, all expenses are deductable. You do not need to have an S-Corp or LLC to deduct expenses or reimburse yourself for gas.

A sole prop does this just as well.

With a sole prop you really have no tax forms to fill out. Or, rather, you fill out your personal 1040 with an extra schedule.

With an S-Corp or LLC you must fill out other tax forms. Additionally there are sometimes extra taxes. For example, in Ohio, I need to pay $150/yr in "activity" taxes. Basically just a tax on corps.

However, the ability to take $ without paying payroll taxes far exceeds this.

Again, note, this is because my main business is consulting. I don't make nearly enough money from vending to make incorporating worthwhile.

Also let me reiterate that S-Corps and LLCs are passthru entities. This means whatever $ is made with them flows through to your personal taxes. You take a paycheck/draw a salary with both entities and pay taxes "on the gross". But these taxes are personal taxes.

So, no tax advantages (other than a % of income free from FICA or SE taxes) with an S-Corp or LLC.

If you were to form a C-Corp that would be a different story, but the hassel of doing that would outweigh the gains.

Kevin

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