S Corp versus Sole Proprietor

[bschafer]

Hi, I have been in business for 15 years in a technology type business and there are no employees other than myself. The technology has grown past my services and the business is dwindling. I have always been an S Corp and thinking that I may be advantages to switch the company to a sole proprietor to save costs ( ei payroll checks, etc.etc. ). Does anyone have any insight as to whether or not this may be a good or bad idea? the business may have another year or so or less. Thanks

[jamesray50]

Personally, I don't see why you would change if you are going out of business in a year or so. Just finish up with everything and dissolve the corp and file final tax returns when you are no longer doing business.

[mer7cer7]

LLC all the way. It is disregarded entity for Federal (meaning it is treated like a Sole Proprietor) if solely owned. Each state is different on LLCs and should be looked into. Unlike a S Corp, it is treated usually like a partnership which usually means a lot less work more in filing requirements and flexibility in the operating agreement.

Big advantage over a SP is the limited liability. This will depend on certain factors (e.g. giving a personal guarantee of a loan to the LLC removes the limited liability for that loan). You do want to other things to keep the "corporate veil" to protect you like having a separate bank account for your company. This will help you argue against a lawyer or the IRS that the LLC doesn't really exist since your personal and company assets are co-mingled.

@jamesray50 It sounds like his business is shrinking, not terminating.

I would suggest you first research on your own about LLCs for an hour or two to see if it is right for you (CPA can cost an arm and a leg).

From there I would spend two to three hours looking for a GOOD CPA. They are like Doctors. They have legal/professional protection for you, but most are crap or don't know what they are talking about. Thats been my experience anyways.

Going from one entity to another is usually very complicated accounting wise. CPA is a must!

Hint: Just do an LLC if you ever do another single member business again! Makes things much easier on the books!

[jamesray50]

[QUOTE the business may have another year or so or less. Thanks[/QUOTE]

I took this statement to mean the business was closing. If so, I don't see the reason to change entity type. Why spend the time and money?

[mer7cer7]

I read it like he or she is not sure how long the business will last.

Sounds like they need advice on their overall business plan to make money and save costs before even looking at legal restructuring (as their exit plan could probably hold much more weight tax/financial wise than trying to save costs for a year or so).

[cpajdb]

Hi, I have been in business for 15 years in a technology type business and there are no employees other than myself. The technology has grown past my services and the business is dwindling. I have always been an S Corp and thinking that I may be advantages to switch the company to a sole proprietor to save costs ( ei payroll checks, etc.etc. ). Does anyone have any insight as to whether or not this may be a good or bad idea? the business may have another year or so or less. Thanks

Hi bschafer, I'm a CPA and will offer just one more thing the others haven't yet. If you are actually still making decent money in the business, an S-Corp is likely saving you considerable money on self-employment taxes, much more than what you are paying out in payroll expenses.

If you are no longer making much money, which sounds possible from your post, that is a different story. Spending money on the payroll stuff may be a waste.