Hola-have an opportunity to take over a line (in sales) that my current company wants to disband and curious what I need to do to take over.

-all Orders/invoices will still be made to the factory
-monthly commission checks will go from current company to new LLC
-expenses will be mine
-I will be the only employee

Any input TiA. Would love to sit down with a CPA, Clear lake area.

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I'd form an LLC. It's easy, lots of companies like legal zoom that will do it for a steep fee. It's just as easy to google the steps and do it yourself. You'll recieve webfile numbers to separate business and personal taxes. This is importsnt because if you're currently doing your own taxes, you're going to want to hire a CPA going forward. This will make their life easier and potentially reduce your expense if billed by the hour. This is atleast what my CPA has advised to make her life easier.

Your other option is a sole proprietorship which is in effect do nothing.

I'm sure someone will point out issues with what I'm saying and the real reason is to shield your personal assets in the case of bankruptcy/lawsuit etc. which is very true, I just wanted to offer an additional benefit!

I agree will all of this, except don't forget to optimize the Qualified Business Income Deduction.

edit: Depending on income level, might be better to say don't lose sight of the QBI.

Mailbox and registered agent is another recurring expense if you don't want stuff coming to your residence.

You may not pay SE tax on the salary, but you'll pay the employer half of the FICA and Medicare, which gets you to the same place. You may be able to provide some fringe benefits to yourself in a tax free manner, though.

I would be careful on s-corp elections for LLCs. Lots of people use boilerplate partnership/LLC agreements to form the entities. Those agreements generally have partnership specific terms that can create two classes of stock when applied to an s-corp. That will invalidate the S election, making the entity a c-corp and creating a double tax problem with 21% at the entity and taxable dividends when the cash comes out. I've seen IRS make this argument more and more in the last few years. After Loper Bright and the challenges to the partnership anti abuse rules, I would not be surprised if they come down even harder on these issues.

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You may not pay SE tax on the salary, but you'll pay the employer half of the FICA and Medicare, which gets you to the same place. You may be able to provide some fringe benefits to yourself in a tax free manner, though.

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You don't pay FICA and Medicare tax on the non-salary portion in an S, either the employee or employer portion. I assume you know that from rest of your post but just clarifying. The more you make that isn't taken in salary the better deal this is, obviously.

In this specific situation that the OP asked about he is going to be a sole proprietor so his choice is either a Schedule C or an SCorp. As the numbers grow the math is decidedly in favor of the S. Better to argue the definition of a "reasonable" salary than to max out SS contributions, IMO.

The rest of your post is interesting though. I make a living helping owners maximize their business income so knowing where there's potholes is important to me. Thanks for that.

That's right. I must have misunderstood the post I was responding to.

The classes of stock thing is real though. Look for language in the LLC agreement that refers to allocation methods and substantial economic effect. That's partnership language and usually part of the boilerplate that people put into those agreements.

Pinochet said:

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That's right. I must have misunderstood the post I was responding to.

The classes of stock thing is real though. Look for language in the LLC agreement that refers to allocation methods and substantial economic effect. That's partnership language and usually part of the boilerplate that people put into those agreements.

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For sure. I've created a lot of LLC and SCorps from those but I only do single member. Im not qualified to do a partnership agreement, that's what we have attorneys for.

For many years, I paid myself a salary just above the FUTA limit, so $7,000 plus a little. I personally owned the building and rented to the S corporation, and took fairly large distributions. Had I been audited, I likely would have had at least a partial adjustment, reclassification of some of the distributions as salary. But I got away with paying social security tax on around $7,000, versus on $100,000 or so. I do NOT recommend this approach, lol.

The advice on the second class of stock is quite true. A great many LLCs, particularly when that entity became so popular (often too popular) were set up by attorneys who knew little tax law or do it yourself formation. There are a great many ticking time bombs for entities that made an S election that were set up originally as LLCs, with partnership language such as special allocations.

Which causes a question. Suppose from year 1 the entity filed as an S corporation but had disqualifying language in the formation documents, so S election was busted from day 1. But no audit to discover it. Everything rocks along and in year 10, IRS auditor catches this and prevails in busting the S election. The entity had multiple owners from the beginning. Since the entity always filed an 1120S (they thought they were an S corporation) rather than a partnership 1065 (what they actually were), are years 1, 2, 3, etc. now open? There was no 1065 filed in any year, so the statue of limitations cannot begin to run until a return is filed.

If a return was filed, the statute will begin. The IRS will go back to the earliest open year to assert that you were not eligible to be an s-corp.