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Great info & great post, Kevin!  I like having this all compiled in one spot.  We need to get the POTD voting feature back, b/c this is a great one.  B)

- chris

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Great post.

Would have been even better if you had credited my name for inspiring it ;)

With a C corp you have to "add money" to the company via stock purchase.... right? Say someone sued you with an LLC though, how do they determine what cash is the LLC's and not your cash?

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Bud, sorry, consider yourself credited :)

With all business entities you invest capital. With S-Corps and C-Corps you do this via stock purchases. With an LLC you simply deposit money into the bank account and record it for accounting purposes as a capital investment. This is the $ you can lose (hence the word "Limited").

Understand that this doesn't need to be "cash". It can be equipment. It can be "knowledge", etc.

Kevin

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Big respect on that post. I'll read it several times.

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All in all a very good post with great information

To quote a small portion:

Another option is to pay yourself a salary. This is a little more complicated (you’ll need QuickBooks or something similar to handle the payroll), but you won’t have any estimated or FICA tax worries. Note, in general you don’t want to do this unless it is for retirement benefits purposes. This is because your company will also be paying FICA taxes, so 15.3% is taken instead of 7.65%.

My comment:

I've always worked as sole prop. so maybe I'm wrong here cause I pay someone to do my taxes ;D but I've understood that even as a sole prop I'm having to both sides of the FICA tax liabilities on my PROFITS as a "self employment" (the words the accountant uses)tax. Now that does comes AFTER taking all expenses and deductions but I still pay the 15.3%.

:huh:

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Mission, on line 27 of the 1040 form you deduct 50% of your SE tax. So, you "pay" 15.3% but get a credit for half, so only end up paying 7.65%.

If you take a salary, you pay 7.65% and the company pays 7.65% (as a side note, this is why you need to be careful with subcontractors...the IRS wants the whole 15.3% if it can get it...). This may seem "bad", but like I said, there are good reasons for doing it - retirement planning is one.

Kevin

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OK that shows you how closely I look at the returns after my accountant does them. So we are both right. ;D

Thanks.

BTW, I've had conversations with accountant about the retirement planning (qualifying for Social security) part of this equation as well. It is something to consider, the lifetime benefits of "maxing" out your benefits certainly needs to be taken into account when making the decision about how to pay yourself.

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I was really talking about retirement plans like a SEP-IRA in which your contribution is based on your salary. There are others, like a SIMPLE IRA where the contribution is independent of your salary.

If you are planning on taking Soc Sec and are self-employed, your "profit" that your report on your 1040 counts as your "salary" for calculating benefits.

Kevin

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Excellent information. Just one piece for clarification. In regards to the Liability Insurance. Is the coverage that you speak include if someone gets sick on the product? My insurance agent says that there are 2 levels of coverage. Level one is to protect in case someone is hurt by the machine.

ie, small child pulls machine over on themself. Level two is what he calls "Completed Operations". This coverage includes the above but, also covers you if someone comes back to you and says your candy made them sick. Level one is around $128.00 per year. Level One and Two runs around $350.00. Are both levels required?? I will already have established a sole prop. LLC.

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I only have one Venstar 3000 bulk candy machine that I bought off Craigs List.  Should I set up an LLC?

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I only have one Venstar 3000 bulk candy machine that I bought off Craigs List.  Should I set up an LLC?

This depends if you have any substantial personal assets to lose.  If you own your house free and clear and have $50,000 in the bank, stocks, etc.  then you might want to consider forming that LLC. 

If you're like me and your net worth is currently a negative number, you probably don't need to worry about it.

Without the LLC in place, someone can sue you personally for everything you own.  With the LLC they can only sue the company for its assets, in your case one Venstar 3000.

*I am neither an attorney nor accountant and none of this is qualified legal or tax advice.

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Not sure if this was touched upon  in any of the other  post,  but  In some states when you form a LLC  they can require you to publish it in the local news papers. It might be worth looking into if you are thinking about forming a LLC!

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Not sure if this was touched upon  in any of the other  post,  but  In some states when you form a LLC  they can require you to publish it in the local news papers. It might be worth looking into if you are thinking about forming a LLC!

But, you don't have to form your LLC in the state in which you live, or in the state in which you conduct business.  If you form an LLC in a state other than your own, you'll usually have to register it with your state in some way to conduct business there, but that's all.

If forming an LLC for asset protection, choose the state with the best laws and case history for that purpose.  Currently this is Nevada, imo.  Unless it can be proven that one of the Members/Officers intentionally committed fraud or harm, it is very difficult to "pierce the corporate veil"  and go after personal assets here. 

Wyoming has a very business-friendly environment and the law is written to make it difficult to pierce the corporate veil, however there is very little case history testing the law.

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I am not 100% sure, but I don't believe you need to publish anything in any paper for an LLC. Bostonvendor...do you know a specific state where this is true?

Lolaus, don't confuse an LLC with a corp. An LLC is a *company* - no corporate shield to pierce because there is no corporation.

Since you will pay extra to form an LLC in a state other than the state you are doing business in, I would advise against it. *Corporate* "friendly" states like Delaware and Nevada would offer nothing for a vendor.

Kevin

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I know here in Arizona, they require that it run in the newspaper for so long before you get your LLC

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Lolaus, don't confuse an LLC with a corp. An LLC is a *company* - no corporate shield to pierce because there is no corporation.

This is true, however courts in Nevada look at the two as the same when it comes to a lawsuit.  With an LLC, the "corporate" veil still needs to be pierced in order go past suing the entity and pursuing the personal assets of the principals involved.

I wasn't advising for or against forming an entity in another state, just pointing out that the possibility exists. If the ONLY reason you are forming an entity is for personal asset protection, it's worth paying extra to maintain it in Nevada or Wyoming.  The only "extra" charge is usually for someone to act as a resident agent in the state you choose.

Again, if your only consideration is asset protection there is no bulletproof answer, but some choices are much better than others.

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amc, thanks. I'm kind of surprised at that because who still reads newspapers today :)

Nick, I'm not 100% sure of the laws regarding personal lawsuits in NV, but it is misleading to imply that there is a corp shield with an LLC. An LLC is a passthru entity, where a corp (C-Corp) is not. A corp is an entity to itself, so the concept of "piercing" to get to the owners makes sense. With an LLC, virtually all states (I want to say all, but not 100% sure) have laws that make it illegal to sue the owners of the LLC, unless some type of purposeful negligence has occurred, or the LLC is not being run as an LLC. You don't need to be in NV for that type of protection.

Also, the extra charge is to file as a foreign LLC. Most states require this and the filing fee is at least the cost of filing in the state to begin with. This is in *addition* to getting a registered agent there.

I can't see any reason for a vendor to form an LLC in a state other than the state where they are doing business.

Kevin

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amc, I just checked the AZ SOS website. I think that filing is for *LLP*'s and not LLCs. The two are slightly different and a LLP is typically for professionals (e.g., a group of doctors or lawyers). I think that may be why you need to publish...but I don't think you have to for an LLC.

Still, that is a good point you brought up and something to be aware of.

Kevin

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