New accountant

Met with Ron and Shelli's accountant, Marc Schain. He was not a warm and fuzzy guy, which I liked. He's an accountant. He should be matter of fact. If he were anything else I would consider him to be a phony.

He spent the time, about an hour, to go over how the structure should be handled, the advantages of both s corp and llc.

I still think accountants push s corps because they make more money doing returns. But Marc admitted that lawyers push llc's. I could see that from the web. Not sure why. Is there more money in it for them?

Advantages of an s corp are both tax and retirement based. Joel was right that you can shield some income from self employment tax by taking part of your income as payroll and part as dividend. You take a reasonable salary, pay the 15.3% se tax and the rest is not taxed. But Marc futher explained that if the rest is put in a 401k it is shielded twice. He also mentioned that I can put $20.5M in a 401k (there's an extra $5M in there because I'm over 50), and as a corporation I can match up t 25% further shielding income. Plus my wife can be an employee and do the same.

Of course right now there isn't any extra money for 401k's but hopefully there will be.

There are quite a number of forms to be filled out, which are all part of the fees - unemployment state withholding. He does it all. I have to pay a tax payment on payroll on the 15th of the following month. There are payroll reports, quarterly tax returns that cost 350 and then an annual return that costs about 600. He said the year will be 1M, same as Joel.

Other fees 100 franchise tax.

LLC's cost less but don't have the same flexibility tax wise. llc's are more likely to get audited, which Joel said as well.

Overall I liked Marc. He gave good advice. Seemed to have this down to a science and doesn't cost more than Joel, although he said his annual personal tax return would be 325 to 400 which is higher than Joel.

I asked about referrals to attny and insurance broker. He said he'd think about it. Would have preferred he have an answer at his fingertips, but hopefully he will follow up.

Said to give him 3 potential names for the corp. Came up with Creston River Co., Crestondale Enterprises and Arbor Bach Co. Creston (name of my street in the Bx), River and dale for ... and Arbor = tree + bach.

I probably need to get a real web domain, and use an email address that is more professional. I can get a free address, website and email from MS. Free for a year, although I think the free email has ads on it. It costs $20 a year to get email without ads, and the domain and web address is $15 a year after the first year. So about $35 per year total, which seems to be way cheaper than the web hosting services, which run well over $50/yr.

Per Marc, if I wind up taking a permanent job and need to dissolve the corp., the cost is about $150 and all that's necessary is to file some forms.

Assuming I make $100M (hopefully a lot more), I can set my payroll at $70M and shield the remaining $30M from se tax. That should save 4,500, which more than makes up for the extra cost of the corp.

I can deduct the office space (have to measure it out). If total mortgage is $1370, and average utilities are $500 and insurance is $40, and taxes are $800, then total monthly cost of the house is $2700. If the office space is 10% of the house, then I can charge rent for $270 per month. That's a deduction of $3,240, not including repairs and maintenance. I can deduct my mileage at a rate of 58.5 cents, although that is likely to go down due to the reduction in gas prices.

Cobra is not a permitted deduction, but if I pay it out of the corp ...

The rule is that insurance has to be available to all employees and that can't happen with cobra. But I can get a plan under the corp. that costs about the same. Marc mentioned the Chamber of Commerce, which I guess is where Ron heard about it. There are also small business organizations that work as well, plus NY has some sort of sponsored plan.

The total cost of setting up a corp. should be 750 total, which is about what Joel said.

He asked me if I needed an attny for anything else. I mentioned the engagement letter and contractor letter. He suggested getting a sample for the atty to review. It will cost too much if he has to come up with it himself. That's good advice.

My wife should definitely be a stockholder. It doesn't matter what percentage. There is no advantage for her to be on the payroll right now. Maybe later if there is a 401k or pension advantage.

First assignment

Had my first assignment. It was relatively easy, but odd. A company that handles cash. Reminded me of the co. in LI that held $12MM customer cash. And spent most of it. They were pikers compared to this co. There's nearly $200MM in a custodial account. Sounded like they didn't keep the account properly segregated, and likely can't the way they set up their business. AR cash is co-mingled and their own losses are as well. Could be a mess if this were a melt down, since the companies likely to lose out in the custodial account won't pay their bills.

Worse, the loan was structured on future cash based on historical recurring revenue, not AR. They are essentially pinning their hopes on deferred revenue, because if the company melts down there may not be anyone willing to take over their contracts. Meanwhile, they seem to be doing OK. But they should probably stop taking fraud risk.

The more I think about it the more irritated I am with Joel Smith. He told me to take a loan rather than a withdrawl from the 401k. I am sure I told him I lost my job. Therefore I can't take a loan.

He told me my tax rate would be 45% so I would have to pay another 25% after they took 20% taxes out from any withdrawl. My tax rate is 20% according to my paycheck, not counting ss.

I asked him if I could deduct heathcare costs as a business expense. Did he tell me that I'd have the write the check from the business account? No.

I asked what kind of records to keep. He didn't even give me an answer. I assume he's going to need to see something in order to file returns. Does he need a general ledger, just a pile of expense receipts, what? I asked what kind of software. He said quickbooks. Yeah it's popular, but is it overkill? My business at first is going to consist of funds received from Durkin and money going out to pay bills. A checkbook program can handle that. At worst I will have to keep my expense reports and keep track of my unpaid time to make sure I don't get screwed.

MS Money will be fine. Why should I spend $200 on quickbooks. If there is a reason, to do so he should have told me.

I asked him about healthcare. He said he knows nothing because he's on his wife's plan. WTF? Unless I can get on his wife's plan too, I need advice. He should at least be familiar enough with the healthcare needs of his small business clients that he can refer me to an agent.

Either he doesn't do much of this, or he's erroneously assuming that I know a lot more about accounting than I do. I need to be walked thru this.

From my conversation with the Kalmuses it seems like becoming a corp. is a good idea. Ron did the same thing. But beyond that I still have lots of questions and I don't even know what I don't know. That's why there are accountants.

I need another accountant. Will talk with Jack and Ron.

First job. Wells Fargo AR only deal. Not sure if it is a test or just the first thing that came along.

Durkin is sending a laptop. Need to speak to someone to find out the protocol. It's a 5 day job, including w/u. Is there a manager I report to? How often do I contact? How do I get the work product to Durkin? What template do I use?

I assume I will get some sort of sign-on to his system. Tanya said they are setting me up with email, so I will have some sort of access. She's supposed to send me details by email to my ht email address.

How do I bill them? How do they pay? Direct deposit? Shouldn't someone be calling me to explain it all?

Spoke to Joel Smith. He advised setting up a corporation. Coincidentally that's the route that generates the most accounting fees. He claims that the advantage is there are less ss fees. The rate is 15%. As a sole prop you pay 15% on your entire net income. As a corp. you can set aside a portion of income as wages and the balance as ? non-wages. You only pay ss on wages.

His example was 100M of income - 40M of expenses leaves 60M. A sp pays 9M of ss, but a corp could pay 30M of wages and 30M of non wages, saving 4500 of ss.

But that means you are putting 4500 less in your ss account, and retirement benefits will reduce. On the otherhand if you need the money to live, or can put it in an investment or IRA I guess you are better off.

But the cost of being a corp seems like a lot higher. It's about 700 to set it up, and another 1M per year in accounting fees (125 per quarter and 500 for the y/e). A sp only has to do the y/e return.

I have to pay taxes monthly on income and set up a corporate account.

Deductions? - He didn't provide any suggestions. When I asked he said I can deduct the car payments and insurance, the full amount of a family health care plan, and he would set up a small stipend for a home office.

His other benefit - corps are audited less than sp's.

Want to check with Ron and Jack on how they do it and how happy they are with their accountants. I really need to be led by the hand on this. And I don't want to pay much for it. Seems contradictory.

But 1M a year in accounting fees seems nuts for the kind of business I will do. I will give him all the data, he puts it into his software, and spits out a 1M bill? Maybe its reasonable, I don't know.

I don't want to screw up and either invite an audit, pay more taxes than I need to, or owe a penalty.

I'm not an idiot and I'm willing to invest in software if it pays off. I bet I can do a lot of it myself.

I need to come up with a corporate name. I can use the same corp. for an internet business as well. So either I come up with a generic name or just a serious one and then get a dba for the internet business. I don't want to deal with Durkin or whoever with some goofy name.

Spoke to Mike yesterday. He finally got an answer from his contact. They passed on the transaction. So no job. He has something lined up for 2/1, a basic abl deal.

He was optimistic that he'd be able to find me work, but the expectation is that I will also develop my own contacts and clients to fill in the gaps. I may be able to do that, or not. But either way it will take time and I can't be without income while it happens. Plus I've been out of circulation for 5 years. I need a little time to get back in shape again before I start selling myself to people.

Mike will pay substantially more, plus he's a better guy and I would enjoy working with him. But I need cash coming in.

This transaction sounded exciting, but it didn't pan out. I can't have that happen. I don't have a cushion of cash I can ride out.

I think in the long run Mike and I will work together. Unless I am surprised, I think the Durkin thing will be a means to an end, at best. And Durkin knows that. He's thinking that I will find some controller job or something permanent. Maybe I will, but I really have no interest in that kind of thing. I want to do what I know and what I do best.

This is a new road. Working for myself. Will have to find out if I can make it. It has the potential for being a blast. Just like Mike said. Working for yourself can have serious psychological advantages. It has some serious disadvantages too - you have to keep proving yourself every day and there is no safety net.

Spoke to Durkin. He insists on exclusivity, and his rate is $550, which is $50 less than Mike. Figure a 200 day work-year, that equates to $10M less at Durkin, although there is supposedly the opportunity to make more depending on the project. However the project is determined by him, so whether I make more or not is out of my control.

My guess is $550 is his plain vanilla rate. I should be able to justify a higher rate, but who knows.

Who would I rather work with - Mike. But is he going to guarantee me at least 200 days of work a year? Probably not. I guess I need to talk to him about it. The first job isn't starting out so well - I was supposed to be on the job today. I had my doubts when he told me that his client (Clear Thinking) didn't have the engagement yet.

This can't go on much longer without me bugging off, if I plan to work with Durkin.

Does Mike have any other work to give me if this deal doesn't work out?

Left a message with Joel Smith to find out how it should work. I want to keep my own books - but what can I deduct? When are taxes and fica due?

If I can only make $550 a day, and there are 365 days a year - weekends 104 - 10 holidays = 251 days available. If he can only keep me busy 80%, that's 200 days x $550 = $110M, which is about $30M below my base at CIT.

Deductions - Car = $252*12 = $3M. Gas = $200 *12 = $2400. Home office - ? Others - meals $12/day *200 = $2400. Health insurance? $14000. I don't know. I need guidance from the acct.