Thursday, August 12, 2010

Don't abandon sole proprietorship. There are many benefits.


June --

I am a Computer IT consultant 4 years. Just came back to being a contractor again after several years of W2. I have a TIN and a name but never did the LLC. At age 60 I am most interested in what structure will allow me to put away the most retirements money and allow me to deduct my HUGE monthly health insurance premiums.

Thanks,
Jeri
Eden Prairie, MN


Dear Jeri,

You have a "TIN." For the acronym-averse, that a Tax Identification Number. Also known as an Employer Identification Number [EIN] or Federal Identification Number. They all refer to a business's identification number, similar to a person's social security number. [There are other purposes for an EIN.] More on tax ID numbers here EIN-employer identification # .

An LLC is a Limited Liability Company. There's a lot of info on LLCs right here business entity -- LLC. Did I say a lot? Well, yes, really a lot. Read those posts. In them you will learn that an LLC is a legal way of forming your business. An LLC does not determine tax structure as does a corporation or a partnership or a sole proprietorship.

The pension laws were changed a while back so that now a sole proprietor has more of a choice on pension structure than does an employee. For instance, you may choose a Defined Benefit pension, that will allow you to contribute enormous amounts to your pension. Example: $100,000 contribution on $350,000 net self-employed income. A more modest and more flexible plan is a UNI-k. Think of it as a one-person 401-k.

Health insurance premiums are deductible as an adjustment to income whether you are a sole-proprietor, partnership, or S-corporation. Deducting them as a C-corporation is a bit different.

Think things through carefully, and get as much accurate information as you can before you abandon the advantages of self-employment for a different structure.

Best,
June

1 comment:

Anonymous said...

Hello just curious a flat tax for everyone benefits the US or no ? thanks