4 ms·

Assuming you're in the US, it doesn't take any paperwork to do business as a sole proprietorship. You and your business are legally the same, you have unlimited

Assuming you're in the US, it doesn't take any paperwork to do business as a sole proprietorship. You and your business are legally the same, you have unlimited liability (unlikely to be an issue for you) and you pay taxes the same way you do now. Read as, spend all of your energy finding income-generating projects at this point. You're safe as you won't run into any tax issues down the road you forgot to prepare for.

kls 16y ago
no you pay 15.3% more taxes on your salary. This is you a portion of your taxes that your employee and now you will be responsible for. As well, never do business under your own personal liability, while software is low risk, if you get into a litigious contract dispute you could loose everything. You want to limit your liability and you want to form a S-Corp. Go to an accountant or attorney, not doing this correctly could be a costly mistake, if you truly can't afford one then educate yourself and file online for $50 bucks or whatever they charge now.
- precise 16y ago
  This is exactly the type of advice I'm looking for. Does anyone have any easy to understand/comprehend resource that lays out step by step what I should be doing? Maybe that just doesn't exist. I am located in the US.
  - patio11 16y ago
    Your local Small Business Administration, and probably state- and local-level organizations of the same type, has someone sitting by the phone absolutely freaking eager to mail you a pamphlet or two designed to be comprehensible by fifth graders. Make that guy's day.
    - felideon 16y ago
      Agree. Type this in Google: small business development center <<state name>>
  - blaix 16y ago
    Do what I did, find a CPA that you can talk to in person. They can tell you what your options are and lay things out for you step by step. Even file the paperwork for you to get incorporated. Don't try to figure it all out on your own. The money you will save on taxes will more than make up for the cost of going the CPA route.
- mgkimsal 16y ago
  It's generally going to be a few hundred bucks if you have someone else do it for you, or minimally > $100 for DIY in most states (NC is $125, plus $200/year renewal fee). You don't pay "15.3% more taxes". 15.3ish percent from income is taxed for FICA (social security, etc). You pay roughly half of that 7.x% in traditional employment situations, and the employer pays the other half. Someone making $100k is actually costing the employer $107.6k (roughly). As a sole prop you pay both halves of this tax - that's where the 15.3% comes from. However, you deduct half of it when computing the rest of your income taxes. Long and short - talk to a tax person about how you this is handled. It's not hard, but taking an hour or so to get your head around it is advisable. As to scorp/llc/ccorp, etc... Two points. One, for a single person there likely won't be any major diff between scorp or llc except more paperwork as an scorp. You can elect to be taxed as an scorp while retaining LLC status, but I don't know many who do that. Also, the arguable tax advantages of scorps are likely being reduced or eliminated soon via impending legislation in the US, so don't choose that for tax reasons. There may be some other reasons re: shareholders and such, but you can always 'trade up' to a larger corp at some point if you need to. I do some work with agencies who can get work with me as a sole prop, but if I work under the LLC name, they have to go through a full public bidding process, which a) takes longer, b) increases the chance I might not get the work and c) generally adds more cost to the project all around. So, even though I have an LLC, I still do some work 'outside' of that structure, depending on the situation.
  - kls 16y ago
    You don't pay "15.3% more taxes". with any other election other than a S-Corp all income is subject to the full tax so yes you are responsible for that tax on the full amount of your income. With an S election you are allowed to pay yourself a reasonable salary that is subject to the employment tax while shielding the rest as profit dividend which unlike a C corp are pass through and not subject to corporate taxes. so the taxes on that portion is (0%) so yes if you elect to file any thing other than an S-Corp then you are paying 15.3% on income you would be paying 0% so it is not 7.x% it is 15.3% that you are loosing. Also, the arguable tax advantages of s-corps are likely being reduced or eliminated soon via impending legislation in the US, so don't choose that for tax reasons. That is the worst advice that I have ever heard. The legislation has not been passes and their are a million reasons that a bill can get killed. Making recommendations on speculative future events is irresponsible at best and the fact of the matter is if the poster files an S-Corp and the bill passes then they are in the same place as an LLC for the most part. If it does not pass, they have cost themselves a good deal of money on a inferior election. I was literally just in my accountants office yesterday discussing this subject for a new venture and he assuredly recommended a S-election.

kls 16y ago

no you pay 15.3% more taxes on your salary. This is you a portion of your taxes that your employee and now you will be responsible for. As well, never do business under your own personal liability, while software is low risk, if you get into a litigious contract dispute you could loose everything. You want to limit your liability and you want to form a S-Corp. Go to an accountant or attorney, not doing this correctly could be a costly mistake, if you truly can't afford one then educate yourself and file online for $50 bucks or whatever they charge now.

precise 16y ago
This is exactly the type of advice I'm looking for. Does anyone have any easy to understand/comprehend resource that lays out step by step what I should be doing? Maybe that just doesn't exist. I am located in the US.
- patio11 16y ago
  Your local Small Business Administration, and probably state- and local-level organizations of the same type, has someone sitting by the phone absolutely freaking eager to mail you a pamphlet or two designed to be comprehensible by fifth graders. Make that guy's day.
  - felideon 16y ago
    Agree. Type this in Google: small business development center <<state name>>
- blaix 16y ago
  Do what I did, find a CPA that you can talk to in person. They can tell you what your options are and lay things out for you step by step. Even file the paperwork for you to get incorporated. Don't try to figure it all out on your own. The money you will save on taxes will more than make up for the cost of going the CPA route.
mgkimsal 16y ago
It's generally going to be a few hundred bucks if you have someone else do it for you, or minimally > $100 for DIY in most states (NC is $125, plus $200/year renewal fee). You don't pay "15.3% more taxes". 15.3ish percent from income is taxed for FICA (social security, etc). You pay roughly half of that 7.x% in traditional employment situations, and the employer pays the other half. Someone making $100k is actually costing the employer $107.6k (roughly). As a sole prop you pay both halves of this tax - that's where the 15.3% comes from. However, you deduct half of it when computing the rest of your income taxes. Long and short - talk to a tax person about how you this is handled. It's not hard, but taking an hour or so to get your head around it is advisable. As to scorp/llc/ccorp, etc... Two points. One, for a single person there likely won't be any major diff between scorp or llc except more paperwork as an scorp. You can elect to be taxed as an scorp while retaining LLC status, but I don't know many who do that. Also, the arguable tax advantages of scorps are likely being reduced or eliminated soon via impending legislation in the US, so don't choose that for tax reasons. There may be some other reasons re: shareholders and such, but you can always 'trade up' to a larger corp at some point if you need to. I do some work with agencies who can get work with me as a sole prop, but if I work under the LLC name, they have to go through a full public bidding process, which a) takes longer, b) increases the chance I might not get the work and c) generally adds more cost to the project all around. So, even though I have an LLC, I still do some work 'outside' of that structure, depending on the situation.
- kls 16y ago
  You don't pay "15.3% more taxes". with any other election other than a S-Corp all income is subject to the full tax so yes you are responsible for that tax on the full amount of your income. With an S election you are allowed to pay yourself a reasonable salary that is subject to the employment tax while shielding the rest as profit dividend which unlike a C corp are pass through and not subject to corporate taxes. so the taxes on that portion is (0%) so yes if you elect to file any thing other than an S-Corp then you are paying 15.3% on income you would be paying 0% so it is not 7.x% it is 15.3% that you are loosing. Also, the arguable tax advantages of s-corps are likely being reduced or eliminated soon via impending legislation in the US, so don't choose that for tax reasons. That is the worst advice that I have ever heard. The legislation has not been passes and their are a million reasons that a bill can get killed. Making recommendations on speculative future events is irresponsible at best and the fact of the matter is if the poster files an S-Corp and the bill passes then they are in the same place as an LLC for the most part. If it does not pass, they have cost themselves a good deal of money on a inferior election. I was literally just in my accountants office yesterday discussing this subject for a new venture and he assuredly recommended a S-election.