LLC and Taxes etc is all greek to me. Advice please?

[NinnJinn]

Although I haven't had my first full line machine a full week yet, I have been checking it on a daily basis and doing some cleaning etc,  I am averaging 11 vends each day over the last 5days. And have already found 5 places that I would like to place machines.  I haven't made contact with the property owners yet, but want to be fully prepared before doing so.

I will have more questions about LLC etc, but right now I am curious about taxes etc, before I start to grow.

I understand the need for LLC.  Basically to protect my personal assets etc, but on the income taxes,  we are at the point to where we get an earned income tax credit.  Why?  I dunno.  but we do.  We have been getting them since we had our first child.

If I grow with vending etc,  Will we risk losing our earned income tax credit? 

For example:  Say we do $5,000 in sales in a year,  $2500 of that goes for buying the product. and we spend $2,000 buying machines.  and $500 is spent on commission and mileage.  That means the LLC broke even for that year.  Would we still have to technically pay taxes on that $5,000 we made in sales even though the LLC broke even and didn't have a profit?  I know we would have to pay sales tax obviously.  But we don't want to run the risk of losing our big tax check.

We basically use the tax check for Car and Home insurance and property taxes.  basically if we didn't get the big refund there would be no way we could pay homeowners taxes and insurance. By the time our children are 15yrs old, the house will be paid for and we would have no need for the earned tax credit.

[Profits]

For example:  Say we do $5,000 in sales in a year,  $2500 of that goes for buying the product. and we spend $2,000 buying machines.  and $500 is spent on commission and mileage.  That means the LLC broke even for that year.  Would we still have to technically pay taxes on that $5,000 we made in sales even though the LLC broke even and didn't have a profit?  I know we would have to pay sales tax obviously.  But we don't want to run the risk of losing our big tax check.

You really need to consult with a CPA to answer these questions.  They're fairly basic and they'll do it for free.  I'll answer this part of you question... all of the expenses you listed are tax-deductions meaning if your company netted $0 and spent 100% on business expenses, technically you owe nothing to the IRS.  Does it make you a higher risk for an audit?  Sure.  But keep your books in order and you'll be fine.

Remember, the whole point of forming an LLC or a corporation, or an S Corp, is to create a separate entity offsetting your personal liability for debts incurred, civil claims, etc.  Even if you were to bypass filing as an LLC and go purely as a sole proprietor, this will not* affect your other tax benefits.

(*should not)  Consult a CPA.

[coinvestor]

It would be very hard to make a paper profit in the first year or two in business, or even an actual profit for that matter. Just to clarify your example, machines should be depreciated not expensed. Your EIC would most likely go up for the first year or two in business. Just remember if you EIC amount starts going down (or you exceed the income limits) its because you earned the money through the year and you just need a budget.

JD