TRICKY CLIENT - please help

[WITAXLADY]

ORGANIC business has a store and a luncheonette. They also have started a wonderful skin care line.

1 party is common to all 3

The skin care is mother daughter

The other 2 businesses are mother and (husband)

Husband is the rental LLC for the building and another property they rent out and grow herbs on

 

The Sch C's have become profitable and looking at LLC's and S corp

I know the S corp can be the parent co or holding co for the Market LLC and the Luncheon LLC with the mom being the sole shareholder.

She wants to put the skincare under the same S corp - Is that possible with different shareholders? of each LLC in the S Corp?

 

Or does the Skin care need to be a separate S corp?

Thx

payroll would be done by the s corp as the parent company

 

[Lee B]

If these were my clients, I would set up each business as a separate business entity with separate payrolls which would give you a lot more long term options

especially from a legal point of view.

[michaelmars]

if they operate  as LLC then no payroll is needed for the owners.

[Medlin Software, Dennis]

1 hour ago, cbslee said:

If these were my clients, I would set up each business as a separate business entity with separate payrolls which would give you a lot more long term options

especially from a legal point of view.

Agree, and make sure the person acting as the agent for the entities is a qualified attorney at an established firm.  DIY is rarely a good option in these situations. 

[DANRVAN]

There is not enough information to make any suggestions here.

Reference is made that two parties are involved in each business, but a Schedule C is filed for each. 

How are each of the parties involved in regards to capital investment, asset ownership, time involved and compensation?

There are concerns if husband is involved in business which also rents property owned by him.  Was the property solely his to begin with?  Was there a bonified business purpose if wife transferred any ownership to him?

What are the long term plans and succession goals for each of these business?

How interrelated are the businesses and how much profit from each.

I would refer any legal concerns to their attorney.

[Medlin Software, Dennis]

I appreciate the mention of succession (and I also include ending - voluntary of not,  and possible sale).  It is rare indeed for someone organizing or starting a business to look at the end game.  Some decisions at startup can drastically alter the possible end, or at least make it costly to alter.

Thus the earlier mention of completely separate entities is not to be ignored, depending on the long term plan.  While some call it a game, it is a game, protect the interests.  One may have employees, and suffer something costly (like UI claims or WC issues) and should be insulated from others.  Not suggesting UI dumping or anything along those lines, just to be wise and think things through.  There are plenty of experts in this specific topic to engage.

It seems like it may be wise to avoid multiple entities which make little or no money as I suspect those may be looked at strongly going forward.

[WITAXLADY]

update - WI

Sch C - mom has 1 with both luncheonette and organic market

splitting off into 2 businesses as luncheonette can now stand on their own with a manger

Market very profitable now- = LLC to S corp in WI so as to have wages and distributions with retirement to lower SE Tax due

the 2 LLC's under 1 S corp and the S corp would be the parent company doing the payroll as holding company

 

The 3rd company splitting off is a skincare line that is doing very well - but has another person involved with the mom - so a separate LLC - for liability

My question - can LLC's with different members all be under 1 S corp - if the S corp does not have all of them as shareholders - as the other person is only involved in the 1 LLC
Or should that be it's own LLC and then it's own S corp

2ndly, And then can the 3rd LLC/S corp contract to the first S corp to do it's payroll?

And if so - would there be still 2 payroll accounts/EIN's or just 1 from the 1st S corp as contract labor - like a temp agency does?

 

Make money! or would not consider

 

D

 

[Lee B]

Over the years, it is amazing how clients think they are saving money by avoiding the use of Attorneys.

So many people who regard legal documents as something to be signed and forgotten?

 

[Medlin Software, Dennis]

5 minutes ago, cbslee said:

Over the years, it is amazing how clients think they are saving money by avoiding the use of Attorneys.

So many people who regard legal documents as something to be signed and forgotten?

 

Pay for the expertise, but try to understand what you are signing too.

Said as I had to get to page 73 of my BOP document (past exclusions for E&O) to get to the E&O rider!  When I first reread the policy documents, I reached out to the agent because the disclaimer was, 70 pages before the rider.

[WITAXLADY]

hm - this still seems to me to be a tax issue??

[Medlin Software, Dennis]

4 hours ago, michaelmars said:

if they operate  as LLC then no payroll is needed for the owners.

Sorry, missed this earlier.  Unless there is a wonderfully in place and funded self retirement plan, I am personally not fond of not paying into SS.  It does require belief the government will never let SS wither, which is not a crazy belief.

Examples.  Disabled child/adult child able to get SSDI from SSA retired parent earnings.  Non working spouse benefits.  Survivor benefits.  etc.  Let alone the worker's personal benes.

Could be, like we elected years ago, that one gets a W2 and earns as close as possible to the SS limit (or enough so the SS calculator shows the desired benefit level when planning to take SS retirement).  In the case of wanting to leave the best for the non working spouse, and any now or potential before age 18 disabled children, maxing out SS earnings could be a long term win (among other possible wins).

So much to consider, likely way more than a tax/payroll pro should even consider delving into.  Makes the case of having some sort of overall advisor, with specialists available (a bigger accounting/attorney/estate/succession firm).

[Lee B]

17 minutes ago, WITAXLADY said:

hm - this still seems to me to be a tax issue??

 

No, there are both a tax and legal issues of concern.

If you take it upon yourself to decide that it's only a tax issue, then you are doing your clients a disservice.

Do you think Attorneys and their legal advice provide a useful service?

So do these clients even have an Attorney? 

[DANRVAN]

1 hour ago, WITAXLADY said:

My question - can LLC's with different members all be under 1 S corp - if the S corp does not have all of them as shareholders - as the other person is only involved in the 1 LLC

LLCs cannot be shareholders of S Corps, but S Corps can be members of an LLC.

If the best structure for each entity is a Sub S, then each should have own ein, payroll..etc...keep them independent of each other!

[Medlin Software, Dennis]

14 minutes ago, cbslee said:

 

No, there are both a tax and legal issues of concern.

If you take it upon yourself to decide that it's only a tax issue, then you are doing your clients a disservice.

Do you think Attorneys and their legal advice provide a useful service?

So do these clients even have an Attorney? 

Well written.  All the group can do is offer advice and experience, and the reader gets to ignore if they elect to.  I do this daily with my customers.  I stick my advice to areas which fall within the scope of what they pay me for, but I will often, with disclaimer, add stuff from the college of hard earned experience.  The former, I expect then to heed, since they are paying for the reply, the latter, it is up to them to do what they wish with the information from my experiences.

With the OP's handle including the word "tax" and not including JD, Esq, or anything similar, it would be tough to believe the OP should not be farming out whatever the client has asked which prompted the post.  I presume there are professional referral options available everywhere, some which may even come with a referral fee?

[kathyc2]

15 hours ago, WITAXLADY said:

update - WI

Sch C - mom has 1 with both luncheonette and organic market

splitting off into 2 businesses as luncheonette can now stand on their own with a manger

Market very profitable now- = LLC to S corp in WI so as to have wages and distributions with retirement to lower SE Tax due

the 2 LLC's under 1 S corp and the S corp would be the parent company doing the payroll as holding company

 

It sounds like this would be overcomplicating things.  Why do you/they want two different companies? Do they share the same building?  Is food purchased, and then the same sold or used in luncheonette?  Do you or they really want to do all the accounting to allocate between the business cost of food, rent, utilities, insurance, etc?  Why not keep it cleaner and have one LLC that opts to be taxed as a S corp?

[Sara EA]

We have had clients who called with intricate questions.  When we told them they really should consult with their attorney, they pointedly said that attorneys charge too much and they were hoping to get answers from us (on a free phone call)!  In this case it's a no brainer.  They need an attorney or FA to set this up the right way to achieve whatever goals they have.

[Lee B]

Almost all of my clients are Blue Collar Businesses.

Every single one of them has a knee jerk response to avoid using Attorneys.

When they do reluctantly use an Attorney, they won't ask the Attorney to explain all the stuff they don't understand.

So in the end their expectations were fulfilled, it was waste of money.

 

[Catherine]

I tell clients, "I'm not a lawyer, and I don't even play one on television," and follow that with "and it's illegal for me to give you legal advice - you need an attorney." With advice not to stop asking questions until they understand what they are being told.