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Scott Bennett
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iab wrote:What are the rules with regard to this? What is stopping me from taking a wage of $1, having my distributive shares equal $89,999 and avoid fica altogether?


The IRS looks out for that kind of thing (wages less than fair market value), that kind of split would get you audited for sure. S Corps also come with all the requirements of a real corporation: by laws, shareholder meetings, minutes, etc. For a 1 or 2 person business, that gets fairly burdensome.

Re: Starting a design company for myself

Postby iab » May 8th, 2014, 1:01 pm


iab
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Scott Bennett wrote:I don't know why anyone would elect to be a SP, especially with a design business where you bear responsibility for product liability. That is an enormous risk.


That is an inaccurate blanket statement. Liability can be controlled by the type of work you are doing and the contract you sign with your client.

Doing concept sketches and models does not open you up to liability, they are not a finished good.

If you are doing work on the finished good, it will depend on the the work. Packaging graphics for 14pt SBS ? What exactly is your risk?

Doing the final specifications? Sure, there can be risk, but again, it depends. You can have a contract releasing you from liability with your client. Of course a lawyer can sue you anyway, but if you did that work with a fortune 500 company and you are some schmuck with a 5-person office, trust me, the lawyer will ignore you while going after the deep pockets of your client.

As I wrote before, you need to balance the actual risk with the time and cost of incorporating. I can go to wally world and buy a helmet for $20 so if I fall while walking it will protect my head. But I won't.

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Generatewhatsnext
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To the original poster: Looks like we've shined a light on a lot of different options for you to run your new business. I would recommend speaking with an accountant who deals with small businesses in the State in which you'll be operating.

IAB -Sorry, didn't mean to cut short on our posts, I was having a 5 Monday week - as was mentioned above, the IRS has thresholds in place for every category of filing and a good accountant knows what those thresholds are and how to make sure you're running your business correctly, that's why I defer to them - they know what they're doing and it can differ State to State.

Scott Bennett - the Corporation rules really aren't burdensome in comparison to the tax advantages for an S Corp. I like to think of our business structure from a long-game standpoint. We have depreciating assets, inventory write-offs for our internally developed products, R&D, travel, maintenance expenses, studio costs, etc that all combine to give us a very good position against our income. In addition, we recently set up a Corporate retirement account (in addition to our roll over IRAs and Roth IRAs) that allows us to contribute with company-matching to maximize our future gains. All these things roll into a package that our accountant handles so that we don't have to worry about it...and there's no way I could stay on top of all the ever changing accounting laws to make the most of our revenue situation, so it has been more than worth the annual bill for his expertise.
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