Self Employed Consultants
As a successful independent consultant aren’t you looking for safety, lowering taxes and improving your net bottom line? Then you need a formal business organization.
The typical solution is to use a Corporation or LLC. But they are messy, expensive and time consuming. And if you're sensitive to financial privacy, they are a failure. Here’s why…
You first need to decide which organization is the best fit. Then you might want to see if the business name you prefer is available. If so, reserve that name. Then submit paperwork with various personal details to the Secretary of State. You pay filing fees either annually or every two years. Anyone can now look up your business organization on the Secretary of State's website.
Don’t forget you also need a resident agent who will accept a legal summons if someone decides to sue your business. Remember to pay $800 in California franchise taxes – every year.
Had enough already? But wait, there's more!
The state requires that your S Corporation document and maintain written records of your stockholder, directors, and officer meetings. Do those annually. Another post-it note?
Failure to keep these records renders you unsafe in the event of lawsuits, insurance claims, or tax problems. If the FTB tax auditor wants to inspect your non-existent corporate records, your business expenses could be disallowed and all income recast to personal rates. That's painful.
Another problem these days with Corporations and LLCs is business identity theft. It’s like advanced personal identity theft on steroids. Thieves hack your password to the Secretary of State then replace officers or managers. These new people have ‘government records validity' to lease office space, take out loans, or lines of credit spring to life. You didn't know? Just wait until the default notices arrive in a few months. Call the Secretary of State in protest? They disclaim any responsibility.
So what's your solution?
Business Trust Company
Get corporation and LLC benefits without the Secretary of State. There is no registration requirement in California. This means no identity theft risk, no franchise taxes, and no resident agent. Annual paperwork requirements evaporated. Use any business name you want – never a conflict.
Nobody can look up your business trust details online because it’s not a public document. It's private and unlisted. However, you can use the name for advertising, you website and business cards.
You get a tax identification number (EIN) and business bank account.
A business trust company has 3 tax classifications – pass through, partnership or corporation. The most popular option for consultants is S Corporation because it maximizes your net cash.
Here is where corporate tax classification can save you money…
If you use the Schedule C for deducting office expense on your personal 1040, know that form is one of the most highly audited. Now if you pay that office expense on your corporate tax return, it comes right off the top and never reaches your personal return.
Far lower than 37% personal maximum tax rate is your 21% corporate tax rate.
People grumble about the C corporate having double taxation. But the C has more deductions! Before jumping to S review tax strategies.
And if you want an institutional loan, while filing subchapter S, the lender will always want both your personal and corporation tax returns. If you use C corporation you get a W-2 and only your personal return is requested.
Any formal business organization does have benefits to you as a self employed consultant. Your choice is which one. Corporations and LLCs have state obligations, fees, and visibility. A Business Trust has none and it's unlisted. It’s much faster to setup, and you can get S corporation tax treatment.
Save time, money and hassles. Run your business. Take advantage of the tax code and if privacy is important to you, keep your affairs confidential from outsiders with a Business Trust Company.