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Thread: Should I find a different CPA?

  1. #1

    Default Should I find a different CPA?

    I recently registered an LLC in my state. I quickly realized I needed a professional for my taxes, to ensure I have everything set up correctly. My intention is to operate as a SMLLC. I was recommended a CPA from someone I know well. They used this person for their own business, which they set up as an S-Corp for "reasons of liability protection" which made no sense to me.

    When I called this CPA, she quickly threw out the idea of operating as an LLC because I need the "liability protection of an S-Corp". She essentially told me that S-Corps are how things are done now and that LLCs are a "fad from a few years ago".

    It is my understanding that combined with a good insurance policy, an LLC provides you with good liability protection, as does an S-Corp and that the primary difference between the two structures is tax related. I can think of two high liability businesses (a child care center and a dirt work contractor) in my area, who operate as LLCs and have not been sued into oblivion. I am starting off small, and I don't believe that the extra level of complexity that an S-Corp brings is going to be worth the tax advantages, or the "extra liability protection", which I don't believe exists.

    I suspect this CPA prefers S-Corps, because then I have to go to her to deal with taxes more frequently. Am I ignorant of something, or do I need to find someone that won't blow off my idea of operating as an LLC?

  2. #2
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    An LLC is a "dis-regarded entity" as far as federal taxes go. As a single member LLC, you would be considered as a Sole Proprietor and would file a Schedule C along with your 1040 tax return. Alternatively, by filing the appropriate form with the IRS, your LLC could elect to be treated for tax purposes as if it were an S-Corp (assuming you otherwise qualify). This might be a way to get the preferential s-corp tax treatment without having to actually incorporate.

  3. #3

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    Right, I have a decent understanding of this but what of the claim of an S-Corp being safer than an LLC for liability purposes? Is there any legitimacy to this claim?

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    I am not a lawyer, but personally I think that a corporation does offer somewhat better liability protection than an LLC. The idea of a corporation as a stand-alone separate legal entity (corporate personhood) has been around for a long long time, and thus corporations are universally recognized, by the federal government as well as the states, and around the world. LLC's are a more recent invention and exist at the state level but (as above) are not fully recognized at the federal level.

    Both of the businesses I am involved with are incorporated (s-corps), and I have not yet had any experience with an LLC. If a corporation is somehow harder, more complicated, and/or more expensive to set up and to operate than an LLC, I wouldn't know, but I certainly have not found whatever extra burdens there might be with having a corporation to be onerous. The concept of maintaining the "corporate veil" (separation between your business and personal activities) applies equally to an LLC as it does to a corporation.

    But it might help to understand what the liability protection (whether through a corp or llc) is protecting -- your personal assets; assets held by the corporation or LLC are still at risk according to the business's own exposure. The shareholders of a corporation are not personally liable for the liabilities incurred by the corporation (unless the "corporate veil" has been breeched); the personal liabilities of members of an LLC for the liabilities incurred by the LLC are "limited."

    So there are two questions to consider -- what are the assets that you are trying to protect from liability exposure, and what are the possible liabilities that your business might incur? If you don't hold any valuable assets, maybe you don't really need any liability protection, regardless of the potential exposure, since you have nothing to lose...

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    duplicate post

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    Accounting jobs in the US and internationally keep increasing year over year according to the US Bureau of Labor and Statistics. There are roughly 1.3M accountants in the US and only about 650,000 CPAs. Thus, approximately 50 percent of all accountants are licensed CPAs.

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