DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
(OP)
I have an opportunity to perform consulting work for an out-of-state corporation. My current full time employer has given me the green light to proceed with this project (and I have it in writing) provided that I do not utilize any company owned resources, to which I have agreed. In order to provide engineering services I have to be licensed in that state, and I have since obtained my PE license there. Since I am also licensed in my state of residence (NY), I should be in good shape legally. I will NOT be involved in any type of civil engineering, or building construction whatsoever. This is a consulting position for process-related engineering projects in a manufacturing operation.
I am still putting together the consulting agreement (nothing has been signed yet except an NDA). I have the ability to set up my own separate company for this purpose if I choose to. My accountant suggested that I simply use my current tax ID number and perform the consulting work as a DBA for tax purposes. She felt that it wasn't even worth the trouble of getting a separate DBA number, much less establishing a separate company. I'd like some recommendations from the members of this forum who have traveled this route before me, and would like to learn from your experiences, both good and bad.
The topic of insurance has come up, but for this particular type of work, I have a very difficult time justifying getting it. After the project ends (in 1 or 2 years) I would simply cancel the insurance. And from what I understand, once the policy is cancelled, you aren't covered for anything that might occur. So you either walk into it deciding to pay for the policy for the rest of your life, or you just don't get it in the first place. Your thoughts?
Maui
I am still putting together the consulting agreement (nothing has been signed yet except an NDA). I have the ability to set up my own separate company for this purpose if I choose to. My accountant suggested that I simply use my current tax ID number and perform the consulting work as a DBA for tax purposes. She felt that it wasn't even worth the trouble of getting a separate DBA number, much less establishing a separate company. I'd like some recommendations from the members of this forum who have traveled this route before me, and would like to learn from your experiences, both good and bad.
The topic of insurance has come up, but for this particular type of work, I have a very difficult time justifying getting it. After the project ends (in 1 or 2 years) I would simply cancel the insurance. And from what I understand, once the policy is cancelled, you aren't covered for anything that might occur. So you either walk into it deciding to pay for the policy for the rest of your life, or you just don't get it in the first place. Your thoughts?
Maui





RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
Lots of peopel will say that incorporating will save you from geetting sued and losing all your assets. Myabe - but if you are in the personal service business - like we tend to be - no big help. Your best bet is to accept jobs only from people you know and trust....
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
Garth Dreger PE - AZ Phoenix area
As EOR's we should take the responsibility to design our structures to support the components we allow in our design per that industry standards.
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
Keep hold of that accountant, she seems to be a gem. When I was talking about starting my business, I spent some time with an attorney and his point was that a company is not allowed to defend a P.E. from a technical suit. So if you go to the (fairly small) cost and (very large) accounting burden of doing business as an LLC you are protecting yourself from near zero-risk suits (e.g., someone tripping over your threshold and suing you) and not at all from real risks. He recommended sole proprietorship like MikeTheEngineer mentioned.
Then I went to an accountant who said that I had to incorporate or he wouldn't accept me as a client. Two other accountants said similar things. I organized as a sole proprietorship and do my own accounting and taxes. Right decision for me.
Insurance is either a personal risk-tolerance or a contractual issue. If it was just up to me, my risk-tolerance would say "No P&L or Liability Insurance". My problem is that all of my clients require a policy in place and most want to be on the policy as co-insured or at least an explicit waiver of subrogation. If your contract doesn't require it then it falls back to your risk tolerance.
David Simpson, PE
MuleShoe Engineering
"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
Garth, the insurance root just seems to be a endless money pit. I think that I will probably move forward without it if I can.
Thanks everyone for the suggestions.
Maui
www.EngineeringMetallurgy.com
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
Pamela K. Quillin, P.E.
Quillin Engineering, LLC
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
Because I have a full-time job and work very little on the side, the deductions in my paycheck cover my federal and state liabilities. If that wasn't true, I would have to make quarterly tax payments.
If you are looking for contract paperwork, I highly recommend the EJCDC contracts from NSPE. http://www.nspe.org/ejcdc/index.html
Because my jobs are small - quick time frames and small dollar value, I use the short form E-520. There are hold-harmless and indemnity clauses in there. I limit my liability to the amount they paid me for the job. But, I'm also in the situation where I don't do any public works. If I was a full-time employee for the companies I work for, I would be industry exempt. The designs I work on are used in the manufacturing environment and their in-house engineers check everything and have final approval.
--Scott
www.wertel.pro
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
David Simpson, PE
MuleShoe Engineering
"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
Maui
www.EngineeringMetallurgy.com
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
But for an extra $150 more, it may be worth investing in the future of your company. For no other reason, reading through all the other contract language taught me quite a bit about the types of things to watch out for. $150 was a cheap continuing education investment.
--Scott
www.wertel.pro
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
--Scott
www.wertel.pro
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
If you have a gain in your business I recommend doing quarterly tax payments. Also check with your state for their individual requirements. Once your business picks up, you might want to pay yourself a salary (see average salary for department of labor) for a fair figure that will not be disputed in case of an IRS audit (audits for self employed are usually at a higher rate).
I have not bought insurance yet, but I will because I plan to be a subcontractor to other companies. Even though in Florida you principal house cannot be taken from you if you get sued.
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
The double taxation thing is not as real as it appears on the surface. The corporation has revenues. The corporation has expenses (one of which is your salary). When you net them there is a profit (or loss) and the corporation pays taxes on that net WHICH DOES NOT INCLUDE THE SALARY YOU PAID YOURSELF. Then you pay personal taxes on your salary just like anyone else. You have to file two forms, but the total tax is about the same magnitude as I pay as a sole proprietor.
On the other hand, a Sole Proprietorship has revenues and expenses. You net the two and treat the difference as income for the proprietor and pay taxes on that. My marginal tax rate (taxes divided by gross revenue) hovers around 20% of gross.
David Simpson, PE
MuleShoe Engineering
"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
Just out of curiosity, does the 20% include Social Security and Medicare taxes?
Or are those paid only on a nominal salary you pay yourself?
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
I just know that at then end of the tax marathon every spring Turbotax displays a number that is in the neighborhood of 20%. I've always accepted that number without digging into it since I'm not going to do anything different because of it.
David Simpson, PE
MuleShoe Engineering
"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
Double-taxation on a C corporation is related to dividends. You have to pay corporate tax on the dividend amount (since it's part of the profit before taxes), then again on your personal income tax when you receive it. It doesn't come into play with professional C corps, though, unless they're financed with private equity. As a sole shareholder (or as a few of you), there's not a requirement to pay dividends that I know of.
Somebody correct me if I'm wrong.
Good on ya,
Goober Dave
Haven't see the forum policies? Do so now: Forum Policies
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
That is my understanding too, but why an LLC or the other sorta-corp. would pay dividends is beyond me. I'm sure that there are good reasons (paying venture capitalists back maybe?) they just escape me.
David Simpson, PE
MuleShoe Engineering
"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
Otherwise, I have no idea why anyone would do that unless, as you noted, investors demand it.
Good on ya,
Goober Dave
Haven't see the forum policies? Do so now: Forum Policies
RE: DBA, LLC, Sole-Proprietorship, S-Corporation, or Something Else?
David Simpson, PE
MuleShoe Engineering
"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.