How to maximize tax advantages on 1099?

I have been taking a lot of contract jobs that pay cash.
I am going to finish out this FY 2014 as a Sole Proprietor but I was thinking about having next years checks paid to my
LLC and then paying myself a minimum wage.
My taxes and FICA come out to about 37% when I take a check in my name.
I can show a loss every year so far with my LLC.
I know I will still have the same tax rate on wages I pay to myself but what would my tax rate be on my LLC?
What would they be if I show negative gains through my LLC?
Any part time CPA’s out there or Trip Pilots making big buckos like me that are tired of “Taxation without Representation” that have figured out how to take home more and pay Uncle Sammy less when being paid on a 1099?

It really helps if the company reports what it paid to you using your EIN as opposed to SSN. That way the company earned the revenue and you are then able to deduct many more of your usual expenses as business expenses such as travel and business use of your home (office space) plus you get to take depreciation of most assets used in your business as well. I did not form an LLC but a subchapter S corporation so do not pay tax on corporate earnings but only on those earnings which I declare I earned as pay from my corporation which isn’t much after I subtract all my business expenses. Even if you are incorporated, if pay is reported to your SSN I believe it is taxable as income after deductions but I do not believe you can deduct as much although you would have to get the advice of a tax accountant.

LLC and S corp. are really meant to reduce the personal liability of the owners of the S corp or LLC if sued. That’s why LLC stands for Limited Liability Company. For tax purposes, there is little difference. The profits of the S corp or LLC are passed through to the owner, who pays personal income and SS tax rates. In general the S corp or LLC pays the employer half of SS and Medicare, which means you, as owner are paying that; just like a sole proprietor.

You should check with an accountant about deductibility of health insurance for the LLC. With Obamacare, all sorts of things are changing for small business.

I’d differ from C Captain’s advice on one thing, the home office deduction. Because it’s been badly abused the IRS looks at it carefully. If you do not do a very substantial amount of your work in that home office, they can tag you.

This is for C Captain.

I believe I read that you bought a boat that you hope to use to make income. I assume you put the boat under your S corp’s ownership. I’d make sure to take out liability insurance under the S corp’s name.

If the corp. doesn’t insure the boat, a lawyer can "pierce the corporate veil"and sue you personally. The lawyer costs alone can break you.

[QUOTE=Rich Bogad;149869]LLC and S corp. are really meant to reduce the personal liability of the owners of the S corp or LLC if sued. That’s why LLC stands for Limited Liability Company. For tax purposes, there is little difference. The profits of the S corp or LLC are passed through to the owner, who pays personal income and SS tax rates. In general the S corp or LLC pays the employer half of SS and Medicare, which means you, as owner are paying that; just like a sole proprietor. [/QUOTE]

I seem to remember from my days as a business owner that an LLC requires the owner(s) to declare all distributions as wages, whereas a Subchapter S corporation allows the owner(s) to take distributions as profits. This distinction is important to the extent that with a LLC, Veslog would have to pay FICA tax on all distributions, as all LLC profits are distributed to shareholders in the form of wages. With a Subchapter S corp, he would be paying FICA tax only on $ that he chose to pay himself as wages. It follows, then, that by setting up as a Subchapter S corp, he could pay himself a very small wage (subject to FICA), then take a much larger distribution as business profit (not subject to FICA). My memory is a bit hazy, but I also seem to remember that a LLC has to pay an annual filing fee of several hundred bucks. No annual “base” fee with the Subchapter S corp.

As far as limitation of liability of is concerned, neither entity will protect you from a competent plaintiff’s attorney. If some parasite wants to come after your assets, they’ll file a civil complaint with your business entity as defendant and you (corporate officer) as co-defendant.

[QUOTE=Heat Miser;149871]I seem to remember from my days as a business owner that an LLC requires the owner(s) to declare all distributions as wages, whereas a Subchapter S corporation allows the owner(s) to take distributions as profits. This distinction is important to the extent that with a LLC, Veslog would have to pay FICA tax on all distributions, as all LLC profits are distributed to shareholders in the form of wages. With a Subchapter S corp, he would be paying FICA tax only on $ that he chose to pay himself as wages. It follows, then, that by setting up as a Subchapter S corp, he could pay himself a very small wage (subject to FICA), then take a much larger distribution as business profit (not subject to FICA). My memory is a bit hazy, but I also seem to remember that a LLC has to pay an annual filing fee of several hundred bucks. No annual “base” fee with the Subchapter S corp.

As far as limitation of liability of is concerned, neither entity will protect you from a competent plaintiff’s attorney. If some parasite wants to come after your assets, they’ll file a civil complaint with your business entity as defendant and you (corporate officer) as co-defendant.[/QUOTE]

No. The FICA hit is the same since the S corp’s profits all pass to the owner. You have to be a dividend paying C corp to get away with that.

[QUOTE=Veslog;149858]I have been taking a lot of contract jobs that pay cash.
I am going to finish out this FY 2014 as a Sole Proprietor but I was thinking about having next years checks paid to my
LLC and then paying myself a minimum wage.
My taxes and FICA come out to about 37% when I take a check in my name.
I can show a loss every year so far with my LLC.
I know I will still have the same tax rate on wages I pay to myself but what would my tax rate be on my LLC?
What would they be if I show negative gains through my LLC?
Any part time CPA’s out there or Trip Pilots making big buckos like me that are tired of “Taxation without Representation” that have figured out how to take home more and pay Uncle Sammy less when being paid on a 1099?[/QUOTE]

I’m sure Martin Kapp is your man!

[QUOTE=Rich Bogad;149872]No. The FICA hit is the same since the S corp’s profits all pass to the owner. You have to be a dividend paying C corp to get away with that.[/QUOTE]

I was genuinely surprised and disappointed to find out that what had once been a common practice (using an S Corp to avoid payroll taxes), had changed in the years since I had been in business. Some Googling turned up cases where the Tax Court put the kibosh on that in the mid-2000s.

How about if some one in this situation were to make their spouse the majority (non-employee) shareholder with the bulk of profit being distributed as profit to the spouse? Wonder if Tax Court has caught up with that one?

LIE!!!

[QUOTE=Rich Bogad;149870]This is for C Captain.

I believe I read that you bought a boat that you hope to use to make income. I assume you put the boat under your S corp’s ownership. I’d make sure to take out liability insurance under the S corp’s name.

If the corp. doesn’t insure the boat, a lawyer can "pierce the corporate veil"and sue you personally. The lawyer costs alone can break you.[/QUOTE]

the ORCA is owned by my corporation which is the named insured along with the marina it is moored at. Since I own it outright, there is no need for a mortgagee to be a named insured. My P&I cover is for $1.5M and pollution cover is $250k but since I only carry 650gallons of fuel I feel pretty safe with that number. The hull and machinery are only insured for my real investment of $45k. Underwriters will no longer write policies for inflated hull values based on some surveyor’s “Fair Market Valuation” since too many insurers have ended up buying rotten old vessels for way more that they were ever really worth. Can’t blame em with the insured pocketing the cash and disappearing to Belize. I’ll say this much, getting an underwriter to touch a commercial vessel 52 years old with a wooden hull has a VERY tough nut to crack. Took me the better part of two months to finally get an underwriter to at least talk to me…most said N, O, NO as soon as the word wood was mentioned.

ESTERO will get cover come spring

Thanks to all who all who responded.
I think I learned a great deal but my head is still spinning.

I guess I might as well remain a sole proprietor with an LLC.

Additionally it looks like I need to stock up on KY.
Is there any way I can at least get a reach around or a kiss on the cheek?

Can I write off my expenses such as travel, room and board, and per diem as a sole proprietor?

I guess having the general contractor write the check to my LLC holds no tax advantages at all then?

I am pretty sure you fellas dumbed it down enough for me. But maybe not.

At least as a sole proprietor I guess I can claim all my normal deductions such as mortgage interest, dependents, etc?
At this point I see no reason to switch from H&R Block to a CPA unless one of you knowledgable fellas can clue me in on a way to keep more of what is rightfully mine because after 20 years with the same tax preparer I have her trained pretty well on how to maximize the return of a merchant seaman.
Up to now I have been getting W2’s at the end of the year which only allowed me to write off round trip travel one time per employer under “job seeking expenses” for what it would cost me to get myself to and from a job interview.

But now that I am being paid as a sub contractor on a 1099 I can write off every trip?

Are there any other ways than the above listed and normal deductions that a tax preparation company can find for me to keep Uncle Sam out of my back pocket considering my situation and tax status?

Thanks again for the helpful and positive responses.
It was a nice change from the usual 50% stupid ass comments so often posted on a thread in an effort to stir the shit pot.

You should be able to write off every trip away from home for business, no matter what…obviously subject to the IRS rules though. W2, 1099, its still business (profession, job).

Travel expenses defined. For tax purposes,[B][I][I] travel expenses are the ordinary and necessary expenses (defined earlier) of traveling away from home for your business, profession, or job.[/I][/I][/B]
You will find examples of deductible travel expenses in Table 26-1 .
Traveling Away From Home

You are traveling away from home if: Your duties require you to be away from the general area of your tax home (defined later) [B]substantially longer than an ordinary day’s work[/B], and

You need to sleep or rest to meet the demands of your work while away from home.]

Kapp fucked this up by abusing it, but there’s no reason any of us can’t use travel expenses and ‘incidentals’ that aren’t reimbursed as deductions provided they’re properly documented and within the limitations.

Read up on Johnson v. Commissioner, 115 T.C. 210 (2000), http://www.irs.gov/pub/irs-wd/0242038.pdf some good stuff in there.

[QUOTE=c.captain;149879] <snip> Underwriters will no longer write policies for inflated hull values based on some surveyor’s “Fair Market Valuation” since too many insurers have ended up buying rotten old vessels for way more that they were ever really worth. <snip>

[/QUOTE]

Hooo boy. . . . uh, er, I mean no comment. That said, the Insureds ARE paying premiums based on those Fair Market Valuations. . . . .

[QUOTE=Rich Bogad;149872]No. The FICA hit is the same since the S corp’s profits all pass to the owner. You have to be a dividend paying C corp to get away with that.[/QUOTE]

Not exactly correct. You can take distributions that are not FICA taxed. HOWEVER - the activity that generates the profits must be relatively benign.

For example, if you are a dentist that drills teeth all day, and have no business income unless you yourself drill teeth, you cannot take the distributions and then avoid the FICA.

If you own a dental practice and 10 dentists drill teeth and you only come by once a month to collect your check, you can take the distributions without FICA tax.

Now that example may be a bit extreme.

Basically, one man bands where the Owner is working to generate all the revenues of the S Corp — will not qualify for the FICA break on distributions if the tax man cometh.

You might be able to take some distributions representing a small percentage without FICA - but the guidance is not so firm on what the limits are. I suspect if you take out 25% or more as distributions - they’re gonna take a very costly look at you eventually. But that can be more or less …

Mis-classifying is a common “mistake” when taking distributions out of an S Corp.

The rulings on this are easy to find … Read and see a tax professional.