I am starting up a small home business, private swimming lessons. I was told I need to get an S Corporation so that I will not have to pay high taxes, social security tax and it will cover me from being sued if someone gets hurt. Is this the way to go, seems pricey to get a S corp. Couldnt I just begin the business, get an umbrella on my home to cover me. I plan on filing through my husbands income tax since i am an stay at home mom. Would taxes be pretty high for me, I plan on making around 12,000 a year.

I would not go through the trouble of setting up an s corp for something like this. With an S corp you must give yourself a salary and the taxes on that salary are the same as if you just had a regular LLC. Where the s corp shines is if you have large income. You only have to pay social security and medicare taxes on your salary and you take the rest of the money as distributions.

I just got back form the accountant and between doing my s corp federal return and state franchise tax the bill was $1200. With an income of $12,000 you will likely spend more on legal/accounting than you will save on taxes.

That being said I do think it would be a good idea to set up a LLC to provide protection from lawsuits, etc.

Thank you so much for the information. Do I really need an LLC? If I do need an LLC how do I go about getting one and how much would it cost? Couldn't I just get an umbrella policy on my home to cover me? Also, with an income of around 12,000 could I file under my husbands taxes? How much would I have to pay in taxes?

I would not have a business without a LLC but I guess that depends on your personal situation and tolerance for risk. Years ago when my net worth was actually negative I ran a business without one but now I have too much to lose. Sure insurance helps and I would not be without it but an LLC is just really another safety net. If something horrible happened they could sue you for more than the insurance amount. They could go after your house, your car, your bank account, and on and on. The LLC would help protect your personal assets if this happened as the business is a seperate legal entity so they would be suing the company, not you personally. So in theory they can only take what the company has, not things that are yours personally.

I don't really know what you mean by file under your husbands taxes. I assume you file a married filing jointly return now? I am not a tax expert by any means but the self employment tax rate is 15.3%. This is the amount you will be taxed on the 12,000 to pay social security and medicare. Then on top of that you pay regular income taxes based on what tax bracket you are in. This is probably around 15%. So you could pay around 30% in taxes including social secirity, medicare, and fed income tax. Maybe $3600/yr

There are lots of LLC set up places online. It will probablly cost around $300-$500 once you file it with the state and pay their fees. Just do a google search for LLC formation in your state. If you were looking at a big business I would look at having a lawyer do it and theat cost easily cost in the thousands but for the scope of your business I would think the do it yourself kit would be fine. If you do decide to go the LLC route just make sure you follow all the rules and don't make any mistakes by comingling personal and business which would allow them to pierce the veil.

$3600 is alot of money, especially if I am only making 12,000. I think that is why I was told to get an S Corp I wouldnt have to pay Social Security Taxes, Self Employment taxes etc. I wonder if I could get enought right offs to lower my taxes, electricity for pool pump, office space, computer, chemicals for pool, etc...

My main concern is paying too much in taxes! What if I only made 5,000 would i even have to pay taxes on it? This is just myself teaching one on one lessons in my own pool.

Actually, in this day and age of potential lawsuits, perhaps you should get incorporated. But, clearly, this is a decision for you and your CPA to make. Your circumstances suggest that you are clearly in a risky business and so the question in my mind is whether or not you should be an S corporation vs an LLC.

From your business and circumstances that you have mentioned, maybe an LLC is the right answer and is easier to operate and you would enjoy the same legal protection. The S corporation is a rather complicated entity and the tax law will eventually move to neutralize the benefit from not subjecting the pass-through income to Self-Employment taxes.

Also, in most states the LLC can be easily be dissolved, has low minimum franchise or state corporation taxes and is more flexible to operate.

Please also consider reviewing the following link for a more detailed discussion on the advantages of an LLC vs an S Corporation.

Benefits of LLC’s over S-Corporations

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I am more concerned on not paying a high amount in taxes rather than the risk of being sued. I only work one on one and the risk of something happening is low. I just dont want to pay alot in taxes. Do i need an LLC or could I get away with doing neither an LLC or S Corp. Maybe righting off office space, chemicals etc will help..If LLC really don't lower my taxes any, I might as well do neither an LLC or an Scorp. What do you think. Wouldnt an umbrella on my insurance cover me, as far as being sued