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RE: How to become a "Contractor" not a "Sub-Contractor"
Subject:RE: How to become a "Contractor" not a "Sub-Contractor" From:"Wally" <Wally -at- pctrader -dot- com> To:"TECHWR-L" <techwr-l -at- lists -dot- raycomm -dot- com> Date:Mon, 10 Sep 2001 06:45:28 -0700
One minor comment: Unless you expect to be running at a loss for a year
or two, there is no good reason to set up an S corp as opposed to a
regular C corp. With an S corp the profits or losses flow directly to
the personal income taxes of the owner(s) in direct proportion to their
percentage of ownership. The S corp election is typically used for a new
business where the owner(s) will be putting more money into it in the
early years, equipment, furniture, inventory, etc., than they will take
out. Then, these "losses" flow to your personal taxes and end up as a
deduction. When the company starts to make money, these companies will
typically then convert to C corp status to eliminate the flow-through to
personal taxes. The costs of setting up one, S or C, versus the other
are the same so far as I know, and I've done both more than once.
The comments about LLCs are apropos, and these business entities get
audited much more frequently by the IRS and state governments because of
the reasons already mentioned.
BTW, along with a good lawyer, you will also need a good accountant to
advise you on tax matters when you set up your business. Most attorneys
do not do this since it isn't their specialty. And, a good accountant
will cost the same or more than a comparable attorney.
Wally Glassett
Technical Documentation
Digital Integrator, Inc.
Incline Village, NV
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