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  • LLC???

    Ok, I am an LLC, and I thought that separated my personal accounts from the shop accounts. However, my accountant tells me that all the profit my shop makes is considered personal income and I am taxed on that. Is this true??? I thought I got income tax on the salary I gave myself, and don't know what I thought happened to the rest, a free-by? lol

    Now, in From Problems, it says to store up a $10,000 cash reserve. Is this what I'm doing by witholding money from my salary and keeping it in the shop's account? Because that money that's just sitting there, that the gov't is saying is mine is looking mighty tempting.

    Stephen: There is no way that profit is never taxed. LLC's distribute the taxability on profit to the LLC partners. If you took a paycheck that created an expense that lowered profits, but the remaining balance is taxable profit. The sole proprietor is in a similar situation. The corporation usually distributes all of the profit it can because why pay corporate tax, and the balance is then taxed again when it goes out in paychecks, so corporations can have highest taxability factors and need plenty of attention to avoid double taxation. Remember, taxation views things differently, you must understand the Income Statement financial, regardless of being sole proprietor or anything else. Just because you keep money in the business such as the From Problems suggestion whatever portion of it is profit is taxable. You can keep after tax money there, or you distribute it, pay taxes and loan, advance etc back to the business, because profit is ALWAYS taxable and it is returned to you later if on a note etc. You need to explain your goal to an accountant and they can chart the procedure.
    Erin
    No Fur, No Paws, No Service.

  • #2
    How new is your LLC. I know we have so much money invested right now that profits should not be an issue for a while. Ask your accountant. If they are sticklers like mine they will lay everything out in black and white period. If they give you fuzzy answers I would shop around. The best thing to do might be to ask your lawyer what he thinks of the accountant. I am lucky to have a lawyer who is also a CPA, and will nudge one in somewhat the right direction.

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    • #3
      Yes, this is true. The benefit of being an LLC is liability ONLY. Being an LLC protects your personal assets from being seized. LLC -vs- Corp. As a corp you are getting everything you were expecting from your LLC but with a few drawbacks.
      1- You have to issue yourself a paycheck of a certain amount... regardless of how your business did.
      2- Higher accountant costs due to the extra filing that a Corporation must do.

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      • #4
        I've been an LLC since Oct. '05.

        About the Corp, that's what my accountant said too. Stinks.

        Is anyone a C corp vs. LLC on here???

        Stephen, not sure if you can give this info, but what was your guy's shop? Do you suggest starting out as one, then transferring over? Is this something Grooming Bus. In A Box discusses?

        Stephen: We were actuallly a C Corp, no LLC back then or LLP. We avoided the double taxation by distributing all the profit. We are now 2 corporations running our companies and again, we do the same and never pay corp tax on top of personal taxes. We stay on top of it of course. All the way to the last day of the tax year to write out a checking clearing any liability.
        Erin
        No Fur, No Paws, No Service.

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        • #5
          Actually with a corporation you only have to pay yourself a "reasonable" salary. If your business is not making any or much money you don't need to issue yourself a paycheck. The benefit of a corporation is that as a shareholder you can also pay yourself dividends, which are not subject to social security withholdings, as long as they are reasonable in relation to the salary you are paying yourself (which is subject to ss tax).

          Stephen: Let's also remember here that EVERY STATE TAXES THEIR CORPORATIONS DIFFERENTLY. So we may be discussing Federal rules which cover all the states, but careful, state taxation on corporations differs radically at times. For example in WA there is no corporate tax but the corporation like all organizations and sole proprietors does pay taxes based on gross sales of services or products, even what we wholesale if manufacturer etc. So don't take our info here as helping you with your state taxation on businesses of any kind.

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          • #6
            Does BOX discuss these issues? Give recommendations or compare one to another? Or how to avoid the double taxation like you mentioned?

            I thought LLC was the best choice, but now I'm thinking maybe I was wrong. I'd love to know what everyone is on here.

            Stephen: The Box doesn't go into detail on this, but something on this is coming but it's a time away. I always suggest reading www.nolo.com for great help.
            Erin
            No Fur, No Paws, No Service.

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