Hire A CPA?

[PrettyBoyAJ]

This new forum is what this site needs. Glad to have found it out.

Since the last time I posted here consistently I've been doing new work as an Independant Healthcare Consultant and I've been making great money while traveling a lot. Because I'm independent I've been getting 1099 and on track to make 6 figures this year. I talked to a CPA last week and he said it would be wise to make a LLC with a S Corp and give myself a salary so I won't be taxed on certain income. He told me if I hire him he will advice me on how to save $ on taxes and will also have a bookkeeper do my books. I've also talked to other people and they told me to never let anyone else see your bank accounts. I figured I could hire him as long as I keep making my 1099 and when/if I stop I can just keep him on standby just for tax time every year.

So to my people on the forum that make decent money. Did you hire a CPA to help you out with funds or do you do it all yourself?

 

[Tenacity]

You can look at either a CPA or a EA to handle your small business taxes, you want a person that specializes in small business tax returns. I would make sure they have at least 10 years of experience, again are either a CPA or a EA, with an excellent background, pricing, etc.

Now, here's the deal with S-LLCs (LLCs taxed as a Sub Chapter S Corp). LLCs are pass-through entities, which means that the profits are passed through directly to the personal tax return(s) of the Managing Member(s) of the LLC.

S-Corps are the same thing, where the profits are passed through directly to the personal tax returns of the Shareholders.

LLCs have "Members" and S-Corps have "Shareholders".

If you are the only employee in a company and it generates $100,000 in profits, if it's just a basic LLC with no special tax provisions, you would pay the entire Self Employment tax rate on the $100k in profits.

If you elected to open the LLC and tax it is as a S-Corp, a reasonable salary would need to be established and then you can receive the rest of the profits as a distribution/dividend. So again, $100,000 in profits and you are the only guy in the company, based on your industry/average salary, etc., you might have a reasonable salary set at $65,000 and receive the remaining $35,000 as dividends. You would only pay Self Employment tax on the $65,000.

Now, when deciding on if you should do this, understand there are a couple things that must be in balance.

There's a balancing effect to this because understand what the Self Employment tax is, it's a required contribution to your Social Security and Medicare account (retirement accounts).

You HAVE to put a reasonable salary on the board or you might get an IRS Audit. You can't be the only guy in the company with $100k in profits and put your salary at $25,000. They aren't going to buy that.

So the balancing effect is how can you get away with a low enough salary, to avoid making the high required contribution into your Social Security retirement account? Also the balancing effect is in relation to, how much MORE would you have to pay in Accounting fees for the S-Corp v.s. just the basic Sole Prop?

Also understand the concept of Limited Liability when you are the SOLE PERSON in the company. There's really no limited liability in that context from the aspect of avoiding having to pay out on a real lawsuit. A real lawsuit is one involving actual Attorneys that peel through your corporate documentation looking for ways to pierce the corporate veil. Even if you have no co-mingling, maybe you didn't properly capitalize the business? Either way, a judgment involving Attorneys isn't going to escape you that much, that's why business insurance is key as well as ethical business practices involving all regulations and marketing laws. Small Claims Court I wouldn't worry about so much as the person suing you doesn't know how to navigate this system.

 

[PrettyBoyAJ]

I actually hired a CPA who focuses on Independent Contractors.

So tenacity, you would recommend the S Corp as what I should do? And what can I do with my "dividend" profits? Also my CPA would want read only access to my Businness account once my LLC is here, is this safe?

Thanks for the detailed post. It's actually spot on from what my CPA told me.

 

[Tenacity]

Yes, you can hire the CPA that focuses on Independent Contractors but really you want either a CPA or EA that focuses on small business tax returns. You are a small business owner. An EA is an Enrolled Agent that specializes in Federal Taxation. Again, look for at least 10 years of experience, a solid background, and at least a Master's in Taxation or Finance. Google them, look them up on LinkedIn. If you can't find them on Google, pass on them.

In terms of should you do the S-LLC, I presently don't do it, but might start doing it, it all comes down to if you can continue to project how much your revenues will be AND what is the required salary you would have to put down? Also, what's the difference in Accounting fees for the management of the S-LLC v.s. just the Sole Prop v.s. just the LLC?

I don't know why he needs access to your bank accounts? Maybe that's just so that he can track the credits and debits, but can't he do that with just bank statements?

With an S-LLC or S-Corp, you have to make the payroll procedures so you would need on-going weekly/monthly payroll processes. So somebody would have to do that, either your CPA or you can do your own payroll using various payroll softwares.

I don't see my EA until tax time but again, that's because I'm not using the S-Corp right now. Through the year I save all receipts in relation to business expenses and I write off a lot of things that were previously personal expenses that are being used for the business and are now either 100% or partial business expense deductions. I also utilize SEP IRAs and HSA accounts. My actual taxes paid (Federal and State taxes) are usually about 6% or 7% because on top of the massive deductions, I LOAD up my SEP IRA, HSA and then the contributions into the Social Security Account. Social Security is an asset, it's not a strong one like an IRA or 401k, but it's a forced retirement account that we are supposed to (knock on wood) draw from once we turn 67 OR what we can draw from today if we get disabled. When doing my asset calculations, I include Social Security.

Run the numbers, you might not need the S-Corp as after running the numbers, you might just end up moving money that would have went into your Social Security Account into your Accountant's bank account due to higher accounting fees, with no actual major NET savings.

 

[PrettyBoyAJ]

The accountant and bookkeeper combo is going to cost 200$ a month. Website is https://www.ictaxadvisors.com. When on call based on the numbers I gave the accountant he said I should be able to save around 5k a year in taxes. So I'll talk to him again tommorow and see what else he is talking about. If I do continue to deal with him he would only have access to paper statements that I email.

 

[Tenacity]

The accountant and bookkeeper combo is going to cost 200$ a month. Website is https://www.ictaxadvisors.com. When on call based on the numbers I gave the accountant he said I should be able to save around 5k a year in taxes. So I'll talk to him again tommorow and see what else he is talking about. If I do continue to deal with him he would only have access to paper statements that I email.

Yeah, just see if it's worth it or not. The accounting fees being $2,400 a year and you will save $5,000 in taxes, make sure that you don't end up only saving like $1,500 in taxes or $2,000 in taxes, because technically all you would be doing is diverting money from your forced retirement account (social security) which is an asset (even though it's a weak one, still an asset) to a liability in the form of increased business expenses (accounting fees).

 

[PrettyBoyAJ]

Make sense to me. I'm going to go through with it as long as I keep on doing 1099 work. Approximately I will save around 9k on every 100k I make so it seems like a good deal. Also I have it set up where I am doing all the work with his counsel. (I watch too much American Greed). So I will set up the business, I will set up payroll, and the only thing him or the bookkeeper will have access to his any type of statements that I will forward to him.

Plus I do have my degree in Accounting and it would be nice to be able to learn a little bit more from a CPA.

 

[Tenacity]

That's excellent, if you are on LinkedIn we could link up. Congrats on getting your career and education going greatly at just 25!

 

[dasein]

Agree with Tenacity's points and analysis.

In addition, $200 a month seems excessive, I don't understand the need for bookkeeping or ongoing CPA services in this scenario, maybe I missed some details. If a client came to me for same, I'd charge nominally to set up the LLC, make the S election and research a reasonable salary amount. This is a well-known, rather simple tax strategy with the caveats that Tenacity mentions. A sole member LLC doesn't need an operating agreement or member agreement, or a minimal one at most, and the S Election is a one-pager. This would be a -one time- charge of a few hundred dollars at most, not ongoing.

You are basically paying $200 a month for something you could easily do yourself in 8-12 hours a year other than regular record keeping/compiling which you will be doing for the CPA anyway. Up to you as to whether that makes fiscal sense in your situation. I think you could obtain these tax savings without the fees you describe rather easily. Sounds like a racket to me, or at least overservicing/overcharging but again maybe I missed something.

 

[PrettyBoyAJ]

The $ for the CPA is also a tax write off. I think it's better safe then to be sorry. I'll try it out for 5 months and when I get the hang of it I will start doing it myself. The cost to be exact is 150$ a month with the first month free.

Do any of you guys know of any good payroll services I should use?

 

[PrettyBoyAJ]

Well I hired the CPA for a month now and it seems relatively easy.

I'm thinkiny about dumping the CPA though because it is pretty much basic. I used the CPA for his advice and don't need any more advice.

All of it is really simple. Just get paid on my LLC with S Corp. the. Pay myself a salary though a payroll app and on the last day give myself the rest of dividends. I probably wouldn't need any more assistance until tax time and I'm sure turbo tax will be the easy route to go.

Tenacity you think I'm missing anything here?