New Corp Questions

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
iceddante
Posts: 11
Joined: Thu Aug 09, 2018 2:00 pm

New Corp Questions

Post by iceddante » Wed Oct 03, 2018 9:04 pm

I am transitioning from FTE to C2C with a new role. When looking at just the dollar amount of money earned it involves about a 60% pay increase, but I am in NYC and don't know the true cost of running an LLC or S-Corp. In fact I'm a bit of an idiot about this whole process and have many more questions than answers.

First, my situation: My wife works full-time making a pretty good salary (over $100k) as a nurse. There are pension benefits as well but I doubt she will stay at the role long enough to materialize those. Her salary could cover all of our expenses if it had to (but it doesn't!). The wife's health insurance is premium so we are good to go there. I am a software engineer riding the boom that we SWEs have offered to us, though it's hard to know how long that will last. Wife and I are working to FIRE and are pretty thrifty (for New York, anyways) although our newborn threatens to change that quite a bit :D We would most certainly move to a LCOL area when the time comes.

1. I am having a hard time understanding the true cost of making money hourly as a corporation vs W2 and would love to know if there are any resources for determining that (understanding that it would be very specific to the individual).

2. I owned my own corporation years ago when I worked in California and it was not good. I'm very disorganized when it comes to managing my business affairs and I rarely made quarterly payments, didn't provide the proper notice when I moved to a different state resulting in large penalties, etc. For that reason what are the best ways to automate or delegate as much of the administration as possible so I can focus on my core business?

3. I am not sure of what the best corporate structure is for this business, whether it be an S-Corp or LLC. I'm researching that and got some advice to use LegalZoom to set it up. My worry is that it may not be as comprehensive or offer any future guidance as opposed to spending a few extra bucks and having someone locally set it up. Any recommendations?

4. I also don't know what kind of team I need: should I start recruiting a CPA, Lawyer, and/or other specialist?

5. As we are looking to save, what are the best strategies for maximizing savings with this structure? I am currently looking at setting up a Solo 401k somewhere I can invest into index funds. My understanding is both the wife and I could contribute the max $55k/yr. I believe the flexibility in choice of 401k provider would allow us to take advantage of the mega-backdoor Roth option. Is that correct? Are there other vehicles for savings we should explore?

6. I also need to understand what deductions may be available to us in terms of deducting some rent as office space, day care, etc.

7. If my salary as an employee is low enough, the corporation's coffers would start to grow quite large. Can corporate money be invested with an index fund or Robo Advisor, withdrawn every year or 6 months to cover payroll? Is that the best approach?

iceddante
Posts: 11
Joined: Thu Aug 09, 2018 2:00 pm

Re: New Corp Questions

Post by iceddante » Mon Oct 08, 2018 9:27 pm

After a bit of research, it looks like a lot of the typical avenues for this setup are not going to be available to me as NYC doesn't recognize SCorp elections. I would still be able to pay myself a "reasonable" salary. I think I am going to proceed with this structure, though I'm not sure how best to organize the 401k or SEP.

spectec
Posts: 1240
Joined: Mon Jul 14, 2014 8:00 am

Re: New Corp Questions

Post by spectec » Tue Oct 09, 2018 7:25 am

Based on your own comments, seems like #4 is the best place for you to start. It isn't going to be cheap, but if your projections are correct you may find professional guidance to be a wise investment.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

22twain
Posts: 1606
Joined: Thu May 10, 2012 5:42 pm

Re: New Corp Questions

Post by 22twain » Tue Oct 09, 2018 10:16 am

iceddante wrote:
Wed Oct 03, 2018 9:04 pm
I am transitioning from FTE to C2C
OK... "FTE" means "full time employee" to me, and makes sense in this context, but "C2C" had me scratching my head. So I did a Google search. I'm still scratching my head...

https://en.wikipedia.org/wiki/C2C

:confused
My investing princiPLEs do not include absolutely preserving princiPAL.

spectec
Posts: 1240
Joined: Mon Jul 14, 2014 8:00 am

Re: New Corp Questions

Post by spectec » Tue Oct 09, 2018 10:37 am

I wondered about it too.
Maybe "Corporation to Corporation", similar to B2B being "Business to Business ?
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

iceddante
Posts: 11
Joined: Thu Aug 09, 2018 2:00 pm

Re: New Corp Questions

Post by iceddante » Tue Oct 09, 2018 11:54 am

Yes, sorry: the recruiter that discussed this with me referred to compensation as "Corp-to-Corp", which I thought was standard parlance. I guess the abbreviation was my own clever little invention. :D

iceddante
Posts: 11
Joined: Thu Aug 09, 2018 2:00 pm

Re: New Corp Questions

Post by iceddante » Tue Oct 09, 2018 12:00 pm

spectec wrote:
Tue Oct 09, 2018 7:25 am
Based on your own comments, seems like #4 is the best place for you to start. It isn't going to be cheap, but if your projections are correct you may find professional guidance to be a wise investment.
I'm sure it will be. I have spoke with a few CPAs and they differing opinions on how to proceed. It's not unreasonable as there are a few tradeoffs to each approach particulary, it seems, deciding on an LLC vs SCorp. I was hoping there were some NYC freelancers here that might have weighed the pros and cons and could provide some guidance.

spectec
Posts: 1240
Joined: Mon Jul 14, 2014 8:00 am

Re: New Corp Questions

Post by spectec » Tue Oct 09, 2018 3:22 pm

Well, at least we've given it a couple of bumps.
Maybe someone from NYC will jump in yet.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

Jefferson
Posts: 50
Joined: Wed Feb 21, 2018 1:37 pm

Re: New Corp Questions

Post by Jefferson » Tue Oct 09, 2018 7:51 pm

I know zero about NYC law, but keep in mind that your corporate structure does not have to be organized in your state. My LLC is organized in Delaware and I’ve never set foot in that state. I simply have a business license in my home state.

An LLC can elect s-Corp status. That may get you around NYC’s s-Corp prohibition (assuming it exists).

I have no idea what you mean by making money hourly as a business. A business has revenues and expenses. The difference is profit or loss. You can pay yourself a salary and dividends (assuming you make a profit). You don’t want the salary to be too high because of FICA. You can’t be too low bc it must be “reasonable”, but if the company isn’t making a profit, that salary will likely take a hit.

You should definitely get a good CPA.

Might help to know what kind of business you’re talking about.

User avatar
nyinvestor718
Posts: 83
Joined: Thu Mar 05, 2009 7:59 am
Location: New York City

Re: New Corp Questions

Post by nyinvestor718 » Tue Oct 09, 2018 8:40 pm

I am a NYC S-Corp owner. Net profit for S-Corps in NYC is taxed at the corporate level, and as you discovered, since S-Corps are not recognized, you will be taxed per the General Corporation Tax at 8.875% of such net profits! In addition, this also impact the new 199A deductions, since the GCT tax bite would negate any tax deductions realized.

There is UBT - Unincorporated Business Tax for Sole Proprietors and LLCs, of which any net profit greater than 95k will yield a 4% tax.

My suggestion would be to speak with a good CPA that understands these nuances and how to best work with in the scopes of the NYC and NYS tax laws while also maximizing key federal deductions (199A).
All mankind is divided into three classes: those that are immovable, those that are movable, and those that move. -Benjamin Franklin

iceddante
Posts: 11
Joined: Thu Aug 09, 2018 2:00 pm

Re: New Corp Questions

Post by iceddante » Thu Dec 06, 2018 2:13 pm

I don't believe there is much legal risk so there's no benefit to incorporare in Deleware. Keep in mind that, incorporating in Deleware and doing business in NYC would not afford me any benefits from a $$$ perspective.

What I ended up doing is registering as a DBA ("doing business as"). It was an easy process, gets me an EIN with a business name, and is much easier and cheaper than starting up an LLC or SCorp. After speaking with a few CPAs (and reading a bunch of stuff on the web), I think it was the right move for me and doesn't put me at any disadvantages from a tax perspective.

If you don't plan on taking on employees and are not concerned about legal protections I would recommend looking into this as well.

bryanm
Posts: 47
Joined: Mon Aug 13, 2018 3:48 pm

Re: New Corp Questions

Post by bryanm » Fri Dec 07, 2018 11:39 am

S-Corp owner with operations in NY here. I second all the recommendations to hire a good CPA first, and possibly a good lawyer second. The initial fees can be intimidating, but once you have everything set up, running costs are pretty minimal. I have a very simple corporate operation, and my yearly corporate costs are in the low four figures.

Post Reply