|No such thing as a small change|
Re: Should a consultant incorporate (and how)?by sundialsvc4 (Abbot)
|on Jan 09, 2009 at 16:46 UTC||Need Help??|
Welcome aboard, the water's fine. I've been doing this for seventeen years and counting, and I would never go back.
The tax-laws of the United States have many favorable provisions for small businesses, both proprietorships and professional corporations, such as the one you are about to run. The most important distinction is that you are being paid pre-tax dollars, and from this you get to pay all of your expenses ... including office space, automobile time, health insurance (do not neglect this!), liability insurance, business taxes and so forth. The business pays taxes. And, the business pays you.
The business should pay you a salary, that is to say, on a regular and periodic basis. If there's money in the company's pocket but not yours, and a new flat-screen TV set is jumping off the wall at you ... well, you're just going to have to wait until you get your next paycheck. Hard to do, but you'll thank me for that advice someday. Sometimes the company won't have the money to pay you... but when it has more-than-enough, “remember Joseph in the land of Egypt.”
Either the S-Corporation or the LLC corporation seems to be the most common ... and since I just received a package today from “Amazon.com LLC,” I'd say that LLC's are today's winner.
First, you need an attorney. Then, you need an accountant... a CPA, who is also your statutory agent if you need one. Both of these are usually “small businessmen” too; I found both through the church that I then attended. Use them even to do things that you think you know how to do yourself. There are many unfamiliar waters, and just as you are a professional in certain things, they are too. I don't fix my own car, either. These expenses are, of course, business expenses that the business pays.
When you have a business entity that is correctly formed, and that has a qualified legal representative and a qualified financial representative, and that carries the right kind of insurance and so-on, then that speaks volumes for credibility. It says, “this really is ‘a company,’ not an unemployed hack.” And having said that, let me be very quick to say that I did not just unkindly “slam” you! No... amateurish hacks are out there, and in large numbers. Lots of businesses have been badly burned by them. Image is everything, since instinct and gut-feeling drives a lot of business decisions.
Hold everything about “the company” at arm's length from everything about “you.” You work for the company, which has exactly one employee right now. There is a sharp and distinct bright-line between the two of them, and that line is never crossed. When and if Mister Auditor comes around, you can open all your books with confidence.