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My husband has finally decided to quit his job and go out on his own to do construction services. This will include remodelling, additions and new construction as well as general construction project management. He's in the process of getting his GC license and will be taking the test this month. The plan is for him to quit his job after February, which is when he is vested another 20% in his company match to his 401k, and strike out on his own.

This leaves me with all sorts of questions, and I have been perusing through this board, but I still have things unanswered. It seems to me that we will want to have some sort of corporation if only for me to be able to do the books and banking as well as for some small amount of liability question. So that sounds like I need an attorney. Is this a tax attorney? And how do I find a good one? Anyone out there got a recommendation for someone in Massachusetts in the Worcester area?

And what about an accountant? I have always done the books for our personal accounts including when we had rental property and when he was an independent contractor. The one time we used an accountant was when we sold the rental property because I wasn't quite sure how to calculate the depreciation recapture, but for what it cost considering I had provided all the data and a copy of my TurboTax return to that point, I certainly felt ripped off. So I will be doing the books for the business and would prefer not to have to use an accountant. Is that a mistake? Do I absolutely need one? What does it get me if we do the set-up with an attorney?

I guess I'm trying to figure out which professional advice I need, and which I am perfectly capable of doing, so suggestions or things to consider would really help me.

And as far as the books, do I need something like QuickBooks or can I just set up a separate account for the business in my regular Quicken? I expect he will have accounts at the various lumber yards as well as a corporate credit card. We'll also have a checking and savings account which I know I can get at the credit union. Those all seem like normal-type things to me, so I'm wondering what advantages there might be in using QuickBooks vs. just going on with Quicken like I do today.

I think I have a handle on the rest of the things to be done like liability insurance and LTD. And he's already got more than enough business lined up, so I'm not worried about him getting going.

What other things should I be considering?
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A couple things I've learned so far. First, I have an accountant, and they are helping me with quarterly financial statements. It's not too expensive, $150 a quarter, which will save me a lot at tax time.

The accountant recommended an attorney for me to see about incorporation. The attorney in question ONLY does incorporations. The way it works is you get incorporated in your state, and then you file for a tax number, and then file for "S" corporation status. Part of the reason I incorporated is for tax reasons, the accountant told me it would save me on self-employment tax. The other reason is liability - I don't have much that it would protect me from because most of my liability is professional. However, I'm thinking down the line when I have employees and a premises.

For accounting, you can use Quicken. However, I am using Quick Books so all my records are starting out there. I won't have to convert over at some date. Also, it's easier to learn Quick Books when you aren't really busy. I'd hate to do the change when I get really busy.

Basically, all of my decisions were based on making things easy for myself a year or two down the road. I also took a short course in starting a business from the University of Georgia. It was well worth the time.

Also, I did a written business and marketing plan. Since I didn't need them for a loan, they basically were to help me clarify my thoughts.

George
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Thanks, George. You seem to be reinforcing for me that I probably don't need an accountant but more an attorney. I do Product Management for a living which involves managing the entire business, so I've been doing all those plans and financials for years at my regular job. As I will be running the business end, it seems I probably have the applicable experience.

I perused the Quicken site already, and think I'll spend some time over there to see what QuickBooks offers that I might be able to use.

Thanks for help.
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It seems to me that we will want to have some sort of corporation if only for me to be able to do the books and banking as well as for some small amount of liability question.

Maybe yes, maybe no (but probably yes). But which kind of corporation--subchapter S or a C corp? Maybe some sort of limited-liability set up?

So that sounds like I need an attorney. Is this a tax attorney? And how do I find a good one?

All good reasons why you will not regret having a good generalist attorney. Incorporating is not a big deal and most nonspecialist attorneys have plenty of experience doing so. And, since there is so much more involved in the decision than just taxes, it's best to find someone with a number of satisfied small-business clients. A good place to begin your search is the Massachusetts Bar Assoc. website (http://www.massbar.org/).

So I will be doing the books for the business and would prefer not to have to use an accountant. Is that a mistake? Do I absolutely need one? What does it get me if we do the set-up with an attorney?

In my opinion it is a big mistake to confuse what the attorney will provide with what the accountant can do. Unlike personal income taxes, which usually are pretty straightforward, there are any number of pitfalls in corporate tax filing just waiting for the unsuspecting small-business owner. If your tax returns are prepared by a CPA, they are much less likely to be audited (or so I'm told by many sources--my accountant is not one of them, by the way). But, if you are audited, your accountant handles the whole process.

Of course, that's just the tax side. Our accountant helped us set up our retirement plan. She counseled us on setting up Worker's Comp insurance (which we didn't even know we needed.) She is always there for us when we have questions about anything from bookkeeping to real estate. We have come to rely on her a great deal and the cost is peanuts compared to what we would have paid to bail ourselves out of just one of the blunders we almost made before consulting her.

And as far as the books, do I need something like QuickBooks or can I just set up a separate account for the business in my regular Quicken?

Do yourself a great big favor up front and invest in a copy of QuickBooks Pro. First of all, take it from me, it is not a good idea to combine/confuse personal bookkeeping with business. (There are numerous legal reasons for this, of course, but the arduous untangling process that will definitely be required is all the reason I'd need.) And, since you are already comfortable with Quicken, the learning curve for QuickBooks will be much less daunting.

Second--Quicken just isn't sufficiently powerful to provide many of the things you will find that you need. For example, billing with Quicken is a frustrating task, if not a fool's errand (note the lower-case "f" here). Or, what about when your husband hires short-term help? You can't efficiently track their earnings and prepare 1099s for them with Quicken.

But most of all, it's pretty certain you will "graduate" to a small-business software package within your first year, so why switch midstream when you can start off with the appropriate software? We began business using Quicken and thought it was nifty--for about 2 months. It became exponentially harder and more time consuming to make it do what we needed each time an unforeseen, new business wrinkle came into view (about 3 per day, it seemed). After 6 months, we switched to QuickBooks. I devoted about a hundred hours over the course of a month converting those paltry 6 months of Quicken into QuickBooks. A genuine waste of time (and, had we bothered to calculate it, money).

Whatever you decide to do about any of these things, the very best advice I can give you, however, is to relax, have fun, and enjoy being out of the in-house rat race. That makes all the minor tribulations just drift away. Good luck to you and your husband!
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You seem to be reinforcing for me that I probably don't need an accountant but more an attorney.

Unless the attorney is also familiar with tax law, you probably need to see an accountant to see if you should be a LLC or an S corp. Each state treats them somewhat differently so an accountant would probably know more about it than an attorney.
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You seem to be reinforcing for me that I probably don't need an accountant but more an attorney.

I'm not so sure. I'd wager that a lot of us on this board were able to incorporate without an attorney. There are plenty of good do-it-yourself books on the topic with all of the forms you need to incorporate in your state and also maintain the corporate records.

On the other hand, an accountant has been a lifesaver for me. There are a lot of little nits that a good accountant knows like the back of his/her hand about which I was clueless. For example, did you know that you have to capitalize (i.e., record as an asset) the costs of starting up the business rather than expense them? And then depreciate that asset over some number of years that my accountant knows but I don't ? <g> Any other assets that you bring into the business also have to be depreciated properly, and this means correct entries into your accounting system of record.

It was my accountant who told me that if another person owned 10% or more of my business that I would no longer be taxed as a Personal Service Corporation (35% flat rate). I was so astounded by this advice that I checked it out with a lawyer who confirmed it. My wife now owns 11% of my corporation <g>.

A good accountant is also very helpful with the periodic stuff like the monthly tax payments, the quarterly 941 filings, and the once-a-year stuff like the FUTA payment and the state workers' compensation (I'm in Virginia - details will vary by state for some of this stuff), not to mention preparation of the corporate tax return.

As for software packages, you might also want to take a look at MYOB. Here's a PC Magazine review comparing MYOB to Peachtree:

http://www.zdnet.com/products/stories/reviews/0,4161,2353171,00.html

Here's a PC Magazine review from February of seven accounting packages, including Quickbooks Pro and MYOB:

http://www.zdnet.com/products/stories/reviews/0,4161,2433824,00.html

Congratulations, good luck, and please feel free to ask more questions.

Brian
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Whoops,

I think the flat corporate income tax rate for personal service corporations is 34%, not 35%.

Brian
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Thanks to everyone so far for the helpful information. I am thinking that my best bet might be to talk to both a tax attorney and an accountant to see what they can offer. If nothing else, I will need to speak with a few of these folks just to find one that I could work well with. And I could start by having someone help me to do the initial set-up, and if I think I can do it myself, then do that, which sounds like a reasonable plan.

I checked out the Quicken site, and they have a list of what they call QuickBook Certified Advisers. I don't know if I need that, but it does make sense to me to use someone who is familiar with the software I will be using if only to be able to transfer data files. Anyhow, it turns out that my little town of 3500 people has 2 of these folks with one of them being a street over from my house, so I might start with local calls.

I do know that I am obsessive with record-keeping and keeping things separate, so that should help us immensely in keeping expenses and income separate regardless of how we structure. I always kept a separate checkbook and credit card for the rental property, and bought everything separate from my personal items whenever we were shopping so that I could keep the receipts and charges separate. And I generally know what are considered business expenses and how to do allocations, so that should also help.

I'll keep reading here to see what else I need to be thinking, and if I have any other questions, I'll be sure to ask. You guys are just a wealth of knowledge!
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I'm a little late on this thread but let me put in my $.02.

I incorporated 20 years ago and that was the last time I spent any dollars on legal fees. At the time I choose to be a C corp. Whether it was the right choice or not, I am not certain. One of the prior posters (or professionals quoted) suggested that incorporating will save $ on FICA taxes. Wrong, it will not. It will in fact increase your rate, as you will pay both the employers side and the employees side, instead of the slightly reduced, self employed rate.

Another area to consider in choosing to inc. or not is retirement plans. I am not an expert here, but it is my impression that there are more attractive options available for the self employed. Perhaps a knowledgable contributor to this board could comment.

Being that my wife is a CPA, I have no personal advice on your need to hire one. Mine, of course, is invaluable. I would try to do as much of the work myself. Prior to meeting my wife (1986) my annual accounting fees were running over $7,000/yr. But at that time, the whole accounting process seemed so overwhelming to me, so I paid. And of course this was prior to the computer. Today, it seems rather easy. QuickBooks is excellant. Even invoicing (a prior poster complained here) is quite easy. Do not continue with Quicken for the business, but use it for your personal financial affairs.

As far as liability, yes, you are further protected by incorporating. However, either way you will have to have a good insurance policy. Especially in your industry. Additionally, in any loan or lease contract the lender/lessor will still require personal signatures even if you are incorporated. So you will personally still be resposible for the majority of the corporation's debt anyway.

By the way, Workman's Comp insurance is extremely expensive for the construction industry. Talk to your insurance agent also. In CT I know that you can exempt the "owner" from workman's comp to save alot of money (but of course you will have no coverage.)

Good luck.
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Another area to consider in choosing to inc. or not is retirement plans. I am not an expert here, but it is my impression that there are more attractive options available for the self employed. Perhaps a knowledgable contributor to this board could comment.

I think the playing field is pretty level now with the Qualified Retirement Plan (QRP) structure. Certainly the paired money purchase/profit-sharing plan arrangement used by many of us who are one-employee C-corporations is as good as you can get with respect to retirement plans.

Brian
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I'm doing just what your husband plans. I broke off from my boss 7 yrs ago. Nicely(then) if fact he hired me for yrs. as a sub, til he stiffed me on a job.

You have decide if you need to Inc. I haven't, but it is just me. I never plan on hiring an employee, (I've done payroll for 14!) & just don't take on jobs I'd need help on. And walk away from jobs, where I'm getting "bad gut vibes" from the customer. "Gee, I'm way too back up, I don't think I can take on anymore work".

There is the leg work to do in setting up accounts. Banking, Charge, Lib. Insurances. With banking fees cheap here, I now have 5 checking accounts. 2 seperate business, a personal 25 yrs, House(Cap Gains, as I built my own)18 yrs, & now a Money Market.

I bought OuickBooks Pro, but have found out I maybe could have gotten by with just QuickBooks. You can use either as "deep" as you want. I even carry an large invintory one one business. But there is no investing area set up in there? SEP IRAs? So talk to QB person, hire to help you set it first up?

Yes, to me the hardest to get going is the deprection/amortization. First inputs, Vehile, Total worth of tools already owned, Office in Home, Storage building? Once it is in, TurboTax makes it a breeze. Hire a account at first? In both, if the people are good, they don't really "need" the work, but should be willing to getting you started & set up, especialy if you say are are comforable doing books.

Biggest thing. for business & fast word of month business. Plain common curtsies, It has all but disappeared out there. Return calls, Show up on time for meetings, be honest, about hrs if you had a "bad day", about not knowing what you are going to find on repair work. I don't give estimates/bids, Period, even on new work, as I never find the prep done to my quality (on an Island especaily, it is your name that goes on the work in the end). I'll say this is a "Totally ball park", as "I don't know what I'll find". but talk & explain in detail the whys & "what ifs". They'll catch on, or you walk.

Ask around & around, who do you use?, he can ask subs at work.

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Biggest thing. for business & fast word of month business. Plain common curtsies, It has all but disappeared out there. Return calls, Show up on time for meetings,
be honest, about hrs if you had a "bad day", about not knowing what you are going to find on repair work. I don't give estimates/bids, Period, even on new work, as
I never find the prep done to my quality (on an Island especaily, it is your name that goes on the work in the end). I'll say this is a "Totally ball park", as "I don't know
what I'll find". but talk & explain in detail the whys & "what ifs". They'll catch on, or you walk.


I'm glad someone else thinks that. What we have found in our town, and in general, is that people are always complaining that the trades won't call back. I figure one of the biggest things to him being successful is to just return calls even if only to say he's too busy right now and give an approximate timeframe of when he could talk to a prospective client. From what we've seen, he should be able to make a nice business right in our own town just on small projects because most of the guys don't want to touch those.

And since we GC'd our own house and he is on the town Planning Board, he already knows most of the folks in town, so a lot of the connections have already been made. And he's a construction project manager at work, so he's got the commercial contacts also, though his intended business will be residential.

He's already done some side work for people, so now it's a matter of doing it as a full-time job. And he's got some definite work already lined up with one really good opportunity on the line that may or may not work out. But if it does, he'll be set with work for a while.

I've been dying for him to do this for years, and I've always wanted to run my own business, but we can't eat on the things I like to do, so I stay in corporate america. The good news, though, is that we have always lived on my paycheck, so the pressure of him having to make any particular amount of money is removed, and that is helping to relieve some of the stress of taking this big step.
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Brian,

I agree. I was able to put 24,000+ into QRP last year.

Sandy
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I agree. I was able to put 24,000+ into QRP last year.

Sandy,

That's great! Congratulations. I'm aiming for the $20K range this year, which has been the best of my six years as a one-employee C-corp. It will be lower or higher depending upon my final decision on the exact total to put into the profit-sharing half of the paired plan.

As I'm sure you know, that's the beauty of the paired money-purchase/profit-sharing QRP. Set the mandatory percentage that goes into the money purchase plan at a reasonable, doable level (mine is 10%). In a good year I can then put more into the profit-sharing component as long as the total percentage doesn't exceed 25% of gross compensation or $30K, whichever comes first (you're getting pretty close <g>).

In a bad year I can scale back, even to zero, the amount that goes into the optional profit-sharing component. And it's all paid directly by the corporation and the corporation can expense the payments. What's not to like about this type of retirement plan? <g>

Brian
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