Best organization for a one man consulting shop…

By -

This question came up twice this last week so I thought that I would dump my logic and see what people may correct me on… First, the difference between a LLC and proprietorships is simple – with a LLC, you are not personally liable; so a LLC is definitely preferred. For a S-Corp versus a C-Corp, the difference is that with a C-Corp you may have double taxation.

Bottom line is a LLC (which may be a proprietorship) and a S-Corp. For a short summary see here

 

The argument is often to go with an S-Corporation because you can take the money out as distributions and avoid employment taxes. This is true if the reasonable salary for your skill set is below the magic ceiling of $106,800. If you are a software consultant – forget it – the first time that the IRS does an audit, your lower reasonable salary will be laughed at and you will be hit by back taxes, penalty and interest!  At $106,800 you have no more employment tax. The rest is subject to a 2.9% Medicare tax.

 

So there is no savings from employment taxes – and what is the relative cost of a LLC versus a S corporation. Well with S Corp you have a lot more paper work, may have state filing costs every year etc. to quote the link above: “if you form an S-corp, know that you're going to be spending a great many more billable hours with your accountant/attorney.”

 

So if you gross, $200,000/year – you would pay 2.9% x 94,000= $2726 for medicare versus the legal fees, accounting fees and filing costs of a S-Corp PLUS the time to do the paperwork (which could be billable hours!). See this nice table for reference.

 

On the flip side, what if you need to hire someone to help a bit?  Well, I would run them through RentACoder.com with a clean specification and fix price per quantity of work. There is no risk of them being deemed an employee and if they suck – the folks at rentacoder will mediate and resolve the issue (usually in your favor if you done a good clean specification and criteria).

 

When I started up, the wife had managed a S-Corp for many years and frankly, did not want the paperwork and filing hassles that came with it. We worked out that a S Corp was actually going to be a wash for $$$ (ignoring time consumed) or actually cost us money!  So beware of the sell-jobs that accountants may make for an S-Corp, remember they make money from burdening you with paperwork!

Comments

Post a Comment

Popular posts from this blog

Yet once more into the breech (of altered programming logic)

By -
Once upon a time, long long ago, I wrote 8-bit programs in Tiny-C with absolute addressing being the only reality.  Then we had Borland Turbo-C with relative addresses and the joys of relative assembly jumps. Enter Windows and the joys of locking and unlocking memory blocks that you must allocated and manage yourself. Then came Visual Basic which evolved into .Net CLR and decreasing awareness of what is happening under the hood.   With VS2010 including F# and enhanced parallelism in .Net4, we actually have to go retro a bit – back to the world of having to understand the hardware. CPU speeds are no longer increasing – I have an old laptop from six+ years ago that ran at 3.2 GHz. This year I updated one of my machines off-the-shelf from Costco.com, an I7-920 with 4 cores and hyper-threading (8 CPUs appears in Task Manager) and 12 GB of DDR3 RAM. This week I ordered from Costco a Phenom II X6 (Yes – 6 REAL CORES) for one of my daughters.  This CPU will (according to YouTube demos) o
Read more

Simple WP7 Mango App for Background Tasks, Toast, and Tiles: Code Explanation

By -
Image
This is a continuation of this post , explaining how the sample app works. Caution : This sample isn’t meant as an example of best patterns and practices. If you see something in the code you would never do, then don’t. Solution File Organization The app has three Visual Studio Projects: the app, the agent, and the shared code library between them. One of the great things about Mango is that now the built-in Visual Studio Unit test functionality is available. By separating out the meat of the work into the SampleShared project, I can also focus my unit testing there. SampleApp1 The app has a MainPage, a ViewModel, and the WMAppManifest.xml file modified to note my ExtendedTask of BackgroundServiceAgent. The Agent is extremely simple with a call to the shared library, an update to the Tile, and a call to pop up Toast. The meat of the work is in the SampleShared library. The AgentMgr manages the background agent : add, remove, find, run now. It is only called f
Read more

How to convert SVG data to a Png Image file Using InkScape

By -
Image
Introduction The project required the need to put the visual pie chart on a web page on the client and in a Pdf file created on the server. I eventually choose to use a Telerik Kendo DataViz Chart control on the client, and use a PNG file on the server for the Pdf file. This blog post will explain the process and code to convert the client-side pie chart Svg data to a Png file, and provide a download to the working code. Prerequisites You need to have a trial version of the Telerik Kendo library installed in order to make the sample code work. You also need InkScape installed. InkScape is the application that does the actual conversion. You will need to change the Web.config appSetting of “ExeDirectoryForInkscape” to represent your own installation location. Any SVG Data Will Work The pie chart was created using the Telerik Kendo DataViz chart control. While I name a specific control, as long as you have access to the SVG data, the same conversion process on the server will
Read more