Self employed software consultants/developers - I have a couple of questions.

[Darren M]

So, in the near future I may have an opportunity to be semi-self employed and if I pull the trigger on that I have some "How to" questions. Anyone willing to answer them??

1) Should I incorporate or LLC to protect myself/family from legal?
2) I'm good w/ software but not so much on the finances of a company. Bite the bullet and get a CPA or pony up and get Quickbooks and do it myself?
3) Is a CPA worth the cost when it comes tax time?

I have more. The good thing is that this won't be a full time gig. Just something I do on the side.

Thanks for your input!

[abecx]

If you know of any massage therapists, they can help answer these questions.

CPA might be worth it just depends on how much stuff you want to write off, usually they just tell you to pay more to remove yourself from being marked for audit.

[BajaBob]

1) Should I incorporate or LLC to protect myself/family from legal?
2) I'm good w/ software but not so much on the finances of a company. Bite the bullet and get a CPA or pony up and get Quickbooks and do it myself?
3) Is a CPA worth the cost when it comes tax time?

1) Yes, I was almost taken to court last year. And all I make is games. (patent troll). It's cheap. Do it.
2)Yes. I have a CPA, and she only charged me 500 bucks last year. She is great and knows the stuff. Shop around.
3)Yes. Keep programming. Don't get overwhelmed programming is frustrating enough as it is.

[goofygrin]

Been working independent since 2006 (formed a company with two others in 2010 though).

1. Yes. Either S-Corp or LLC taxed as an S-Corp (although I think a single member LLC can't take the scorp election).
2. yes and no. Get QB and an accountant that works with it. Or use Freshbooks, but an accountant typically won't help you.
3. Depends. When it was just me, I didn't use one. I've done the corporate taxes myself this year and last and likely will farm it out next year.

You're going to need to get an EIN and some certificate of filing with the SOS in order to get a bank account (which you'll need).

If you'd be interested in me doing some of this stuff for you and just passing the billing through (for a fee of course) let's talk. You could just do 1099 and then you get the benefits of writeoffs without the headache or W2 (but my cut would be higher since I'd pay FICA, etc. on you). You could buy into our health insurance, but it's not cheap (if you're independent it's cheaper to get a personal policy unless you have health issues or you want to have a baby).

[Darren M]

Thanks for the input and offers. At this point I would be working for a company and doing the free lance stuff on the side. (Completely different software directions so no conflict of interests.)

What is the main difference between LLC and Scorp? Who is the SOS?

[Strychnine]

Thanks for the input and offers. At this point I would be working for a company and doing the free lance stuff on the side. (Completely different software directions so no conflict of interests.)

What is the main difference between LLC and Scorp? Who is the SOS?

SOS = sec of state

Advantages and Disadvantages of a Texas LLC


LLC Advantages

A limited liability company (LLC) has many advantages as a form of business entity:
•Pass through taxation - under the default tax classification, profits taxed at the member level, not at the LLC level - no double taxation.

•Limited liability - the members (owners) of the LLC, are protected from liability for acts and debts of the LLC.

•An LLC can elect to be taxed as a sole proprietor, partnership, S-corp or corporation, providing the correct option for your business.

•Can be set up with just one natural person involved or, in some states, one owner which may be an business itself.

•No requirement of an annual general meeting for shareholders (in some states, such as Tennessee and Minnesota, this statement is not correct).

•No loss of power to a board of directors (although an operating agreement may provide for centralization of management power in a board).

•LLCs are enduring legal business entities, with lives that extend beyond the illness or even death of their owners, thus avoiding problematic business termination or sole proprietor death.

•Much less administrative work and recordkeeping.

•Membership interests of LLCs can be assigned, and the economic benefits of those interests can be separated and assigned, providing the assignee with the economic benefits of distributions of profits/losses (like a partnership), without transferring the title to the membership interest.



LLC Disadvantages

•Earnings of most members of an LLC are generally subject to self-employment tax. By contrast, earnings of an S corporation, after paying a salary to the shareholders working in the LLC, can be passed through as distributions of profits and are not subject to self-employment taxes.

•Since an LLC is considered a partnership for Federal income tax purposes, if 50% or more of the capital and profit interests are sold or exchanged within a 12-month period, the LLC will terminate for federal tax purposes.

•If more than 35% of losses can be allocated to nonmanagers, the LLC may lose its ability to use the cash method of accounting.

•An LLC which is treated as a partnership cannot take advantage of incentive stock options, engage in tax-free reorganizations, or issue Section 1244 stock.

•There is a lack of uniformity among LLC statutes. Businesses that operate in more than one state may not receive consistent treatment.

•In order to be treated as a partnership, an LLC must have at least two members. An S corp can have one shareholder. Although all states allow single member LLCs, the business is not permitted to elect partnership classification for federal tax purposes. The business files Schedule C as a sole proprietor unless it elects to file as a corporation.

•Some states do not tax partnerships but do tax LLCs.

•Minority discounts for estate planning purposes may be lower in a limited liability company than a corporation. Since LLCs are easier to dissolve, there is greater access to the business assets. Some experts believe that LLC discounts may only be 15% compared to 25% to 40% for a closely-held corporation.

•Conversion of an existing business to LLC status could result in tax recognition on appreciated assets
By Texas and other state law in order to proceed with forming a llc, you need to prepare a written abstract detailing your llc purpose, the names of your initial Texas LLC members, the name and address of your Texas registered agent, the details of which will be introduced into the body of your LLC operating agreement and related Texas LLC formation documents assembled for application to the state of Texas.

Texas S Corporation and Advantages and Disadvantages


Advantages of the S Corporation:

•The independent life of the corporation makes possible its continuation, and the relatively undisturbed continued operation of the business regardless of incapacity or death of one or more stockholders.

•Fractional ownership shares are easily accommodated in the initial offering of stock.

•The purchase, sale, and gifting of stock make it possible to have changes in ownership without disturbing the corporation's ability to conduct business.

•The requirement that the corporation's finances and records be separate from the finances and records of stockholders reduces the risk of unrecognized equity liquidations.

•With only a few exceptions, under the Subchapter S election for taxation as a partnership the S corporation pays no income taxes and corporation income or loss is passed through direct to the stockholders.

•To the extent the corporate shield is maintained and other investments and savings of the stockholders are not at risk, the personal life of stockholders is simplified.

•The annual meetings of stockholders and consultations with legal counsel can provide stimulus for improved communication within the stockholder group (often a family group) and can provide more comprehensive guidance for management.

•Depending on the corporation's business record and the policies and practices of prospective lenders, access to credit and the ability to secure needed resources may be improved.

•Earnings representing "return on investment" (interest, rental payments, etc.) are not subject to self-employment tax as long as stockholder-employees receive adequate compensation for labor and management of the business.



Disadvantages of the S Corporation:

•Lenders may require personal guarantees from corporate officers as a condition of supplying credit, thus negating the limitation of liability.

•Conflicts or disagreements among the stockholders may immobilize decision making.

•Restrictions on the sale of stock and/or buy-back agreements included in the bylaws may prevent minority stockholders from being able to recover the value of their investment in the corporation.

•Through the processes of gifting and inheritance, stock ownership can become divided among many persons who are not active in the business and they may become a voting block that does not support needs and decisions believed desirable by managing stockholders.

•Over time, corporation paid benefits for stockholder-employees may become costly and exceed the ability of the business to pay.

•Employment benefits such as life insurance, health insurance, and housing costs are taxable income to stockholder employees with 2 percent or more stock ownership and to employees who are directly related to persons owning 2 percent or more of the corporation stock.

•If appreciated assets are owned by the corporation and the corporation is dissolved, significant income taxes on the appreciation amount will be generated.

I'm going through all of this right now (LLC) and might be able to give a bit of insight (???), but probably not. I'm using Rocket Lawyer to get it all setup. They will procure your EIN / Tax ID number, act as your registered agent, file paperwork w/ the state, provide operating agreement outlines, etc.

[Darren M]

AWESOME!! Thanks Matt!