R
rbd
Guest
State: NC
Hey there,
IANAL, so I have a few questions and some brain dumping. Thus, sorry for the length of this email.
Basically, I'm in the process of setting up a corporation in the state of NC that provides local, on-site computer tutoring (and possibly computer repair, etc, which would probably end up requring me to keep inventory, file forms to defer sales tax for my corporation, etc, so we'll keep it simple for now
Basically, I put an LLC out of the picture early because LLCs in NC have a annual filing fee of $200, as compared to $20 for a C or S corporation. Also, I want to gain the experience of running an actual corporation, although from what I've heard LLCs seem to be the rage now. Here's some background about the business: I will be the only employee for a while, until the client base gets big enough. Basically, I go to client's homes, tutor them in computers, and get paid from there. I've drafted a business plan, corporate bylaws, and am drafting up customer agreement and employee agreement as well as other necessary documents (minutes, shareholder certificates, etc). In the business plan, I've structured the business so it should be able to easily support many employees who tutor clients, who I label as technicians, given that the client base is there, and that customer payment will never need to touch their hands, and instead goes through a sales dept.
My first question is whether I should form a C or an S corporation. I've been reading up on both, but am still not totally sure. I don't anticipate income to be above $50,000/hr for AWHILE, if at all. Right now, I myself am filed as a dependant under my parents, so the 15% tax on a small C corp is definately better than my bracket, which is 30-some%. (However, I could start filing independantly if being an S corp makes better sense and I'll save a lot of $ in taxes). Also, with a C corp there is the issue of that I believe the company qualifies as a personal service company, as I work as an employee as well. This means the flat 35% tax, which can be avoided via reasonable benefits and salaries, but is still a pain. Haven't reasearched this specific area too much yet, but one source I've read said that if I could make someone totally unconnected to the business own 5%+ of the shares, it would remove my PSC status. Is this true? Eventually, I plan on possibly going into other unrelated ventures with this corporation (as opposed to setting up another corp, to avoid a controlled groups situation), but not now. In my mind, an S corp is probably simplier, but C corps have several of those tax deductable benefits, along with their own tax brackets. Given the scope of my business what do you all recommend?
Second question is with employees. At some point I will need to hire smoeone. Basically they will operate rather independantly. AFAIK, the IRS classifieds workers as employees based on if the employer controls the HOW, WHEN and WHERE of their work. I don't think I will be controlling thse factors tightly: They should have the skills necessary when I hire them (I'll give them some basic customer social interaction training), I'll hook them up with new customers, they'll meet with new customers for an initial appt, and past that point they maintain all scheduling with that customer. I do not schedule them and tell them when and where to "work", their customer's do. I will definately pay a lawyer to verify this, as the IRS are real sticklers over this from the sound of it, but from your opinions, does it sound like I can have them on as an independant contractor, or will they have to be an employee?
If an employee, I have a few more questions. Since I don't engage in any interstate commerse (local based business), I beleive I am exempt from the FLSA, and my employee would be as well. Thus, would I have to pay this employee overtime? (Their hourly rate would be between 17 and 25 an hour, which from what I've read would still make them non-exempt if they qualified under the FLSA). Also, 10% of the time they spend might be spend on overhead tasks (i.e. driving to customer, and sending back appointment recepts so the sales dept can process them). Would I have to pay the employee/contractor for this time?
If you've gotten to this point, thanks for reading this overly verbose bit of rambling, and thanks in advance for any answers!
Robby
Hey there,
IANAL, so I have a few questions and some brain dumping. Thus, sorry for the length of this email.
Basically, I'm in the process of setting up a corporation in the state of NC that provides local, on-site computer tutoring (and possibly computer repair, etc, which would probably end up requring me to keep inventory, file forms to defer sales tax for my corporation, etc, so we'll keep it simple for now
Basically, I put an LLC out of the picture early because LLCs in NC have a annual filing fee of $200, as compared to $20 for a C or S corporation. Also, I want to gain the experience of running an actual corporation, although from what I've heard LLCs seem to be the rage now. Here's some background about the business: I will be the only employee for a while, until the client base gets big enough. Basically, I go to client's homes, tutor them in computers, and get paid from there. I've drafted a business plan, corporate bylaws, and am drafting up customer agreement and employee agreement as well as other necessary documents (minutes, shareholder certificates, etc). In the business plan, I've structured the business so it should be able to easily support many employees who tutor clients, who I label as technicians, given that the client base is there, and that customer payment will never need to touch their hands, and instead goes through a sales dept.
My first question is whether I should form a C or an S corporation. I've been reading up on both, but am still not totally sure. I don't anticipate income to be above $50,000/hr for AWHILE, if at all. Right now, I myself am filed as a dependant under my parents, so the 15% tax on a small C corp is definately better than my bracket, which is 30-some%. (However, I could start filing independantly if being an S corp makes better sense and I'll save a lot of $ in taxes). Also, with a C corp there is the issue of that I believe the company qualifies as a personal service company, as I work as an employee as well. This means the flat 35% tax, which can be avoided via reasonable benefits and salaries, but is still a pain. Haven't reasearched this specific area too much yet, but one source I've read said that if I could make someone totally unconnected to the business own 5%+ of the shares, it would remove my PSC status. Is this true? Eventually, I plan on possibly going into other unrelated ventures with this corporation (as opposed to setting up another corp, to avoid a controlled groups situation), but not now. In my mind, an S corp is probably simplier, but C corps have several of those tax deductable benefits, along with their own tax brackets. Given the scope of my business what do you all recommend?
Second question is with employees. At some point I will need to hire smoeone. Basically they will operate rather independantly. AFAIK, the IRS classifieds workers as employees based on if the employer controls the HOW, WHEN and WHERE of their work. I don't think I will be controlling thse factors tightly: They should have the skills necessary when I hire them (I'll give them some basic customer social interaction training), I'll hook them up with new customers, they'll meet with new customers for an initial appt, and past that point they maintain all scheduling with that customer. I do not schedule them and tell them when and where to "work", their customer's do. I will definately pay a lawyer to verify this, as the IRS are real sticklers over this from the sound of it, but from your opinions, does it sound like I can have them on as an independant contractor, or will they have to be an employee?
If an employee, I have a few more questions. Since I don't engage in any interstate commerse (local based business), I beleive I am exempt from the FLSA, and my employee would be as well. Thus, would I have to pay this employee overtime? (Their hourly rate would be between 17 and 25 an hour, which from what I've read would still make them non-exempt if they qualified under the FLSA). Also, 10% of the time they spend might be spend on overhead tasks (i.e. driving to customer, and sending back appointment recepts so the sales dept can process them). Would I have to pay the employee/contractor for this time?
If you've gotten to this point, thanks for reading this overly verbose bit of rambling, and thanks in advance for any answers!
Robby