Question for Business Owners

[a_minimalist]

An accountant can explain that better than I can. If any read this and wish to correct me I would be grateful.

Okay, an LLC is as you probably know a Limited Liability Company. Income in an LLC can be used as a pass through to employers or owners. That means you can use it to avoid a dividend tax. Only an owner or shareholder (if it is a publicly traded stock company) can be assessed a dividend tax, and that is assessed on the revenue generated.

So most corporations create what is called a Flow Through Entitiy or FTE. That is what an S-Corp is a type of. S-Corps do not pay Federal Income Taxes because their assets are passed through to owners. Hence why you should pay your wife through the S-Corp if you are married. Pay your children too.

All of the monies, including your salary are still taxable, but as salaries not as dividends.

You want to know how the really rich avoid so much in taxes? This is one of the first steps they take.

So, all payments you receive should go to the LLC. Let's say it is called A Minimalist Company, LLC. Now, you have a bank account for your LLC and this is where you make deposits for the company.

You then pay the S-Corp which is your FTE. From that FTE you pay your own salary and payroll taxes.

Much less than dividends at the top through the LLC, and you still keep the money rather than Uncle Sam.

You actually answered all of the questions I was wondering about. I don't have a wife or kids and don't plan on it until later in life, I'm 28 which is old but mid 30's would be ideal. We'll see what happens though. I want to have a career first or at least in the midst of having an established one.

I'm really glad you explained this to me because if I was able to convince my father and prove to him that I can do this I would want to give him 10% of the company, my mother 10% of the company, and my sister 10% of the company. They wouldn't be working for the business but they would be part owners and collect money once the business became profitable. An S-Corp sounds like the best way after reading what you said and reading some more about them on my own.

My only concern now is the cost of an S-Corp. I've read some brief remarks stating it is costly and more formal than an LLC. It's absolutely worth it but it sounds like I'll have to dig a little deeper and educate myself more.

 

[a_minimalist]

I had thought about opening my own business at one time but when you weigh the pros and cons I was just not willing to make the move. My dad owned his own business for many years and the hours you put in the lack of time off and the constant worry about making it work can weigh heavily on you. Clearly there are Pros being your own boss and I wish you the best of luck should you make this move but before you do look at the entire picture

Thank you, it sounds like I'll need some luck.

I think I've done a decent job of looking at the entire picture. I've literally thought about doing this and wanted to do this for the past 5 or 6 years. I've looked into what it takes and what you have to do. Technically I've worked in the industry since I was 18. I have a very good understanding of how it works. There are parts of this industry that I love and I am passionate about so I am willing to dedicate my life to it. I had no life while I was in school, working, and interning -- not to mention doing things industry related in my spare time -- while trying to educate myself about the processes of the industry and what it takes to be successful within it. At that time that was when I was the happiest I've ever been in my life. That alone seems like a pretty good reason to continue following that path.

I'm sure there is more I can contemplate but the one thing I have prepared myself for is a lot of pain and hard work. I do not think it will be easy.

 

[Doomsday101]

Thank you, it sounds like I'll need some luck.

I think I've done a decent job of looking at the entire picture. I've literally thought about doing this and wanted to do this for the past 5 or 6 years. I've looked into what it takes and what you have to do. Technically I've worked in the industry since I was 18. I have a very good understanding of how it works. There are parts of this industry that I love and I am passionate about so I am willing to dedicate my life to it. I had no life while I was in school, working, and interning -- not to mention doing things industry related in my spare time -- while trying to educate myself about the processes of the industry and what it takes to be successful within it. At that time that was when I was the happiest I've ever been in my life. That alone seems like a pretty good reason to continue following that path.

I'm sure there is more I can contemplate but the one thing I have prepared myself for is a lot of pain and hard work. I do not think it will be easy.

At least you have the understanding to know it is not all peaches and cream. So often people get enamored with the ideal of being their own boss they forget that when you own your own business all the problems that come with it go home with you at night. As the employee when the day is done it is someone else’s problem and worry.

 

[a_minimalist]

BTW, unrelated but I am so glad someone used that picture for an av or sig. I love that shot.

I wasn't sure what you were referring to at first but now I think I do. I love that shot too. It has that "I've arrived" feel to it, or at least IMO it does. I still want to buy the book and see if I can blow it up and have it framed. Not sure if the picture quality in the book will allow it though.

We'll see though, it's not something I plan on doing for a while.

 

[a_minimalist]

At least you have the understanding to know it is not all peaches and cream. So often people get enamored with the ideal of being their own boss they forget that when you own your own business all the problems that come with it go home with you at night. As the employee when the day is done it is someone else’s problem and worry.

Yeah, you're right. I haven't even asked for help from my parents yet --it's not even guaranteed they will help -- and I feel stress and fear already from the idea that I could potentially lose their money if the business failed. I'm assuming it will only get worse until they get their money back.

 

[Doomsday101]

Yeah, you're right. I haven't even asked for help from my parents yet --it's not even guaranteed they will help -- and I feel stress and fear already from the idea that I could potentially lose their money if the business failed. I'm assuming it will only get worse until they get their money back.

It is a big move but I'm not one to squash people dreams. Opening and running your own business is the back bone of this country and while it is hard work and risk it can also be very rewarding.

 

[Hoofbite]

There are always early withdrawal fees with a retirement plan, which a 401k is.

Yes, it is basically exactly that since a 401k is not taxed.

Interesting.

Thanks.