As I was doing my taxes the other day I got wondering. At what point does it make sense (or is it required) for you to become a true business?

I had a few jobs that sent me 1099s so therefore I had to report the earnings. Not that I try to skip out on my taxes but a few $100 cash here and there might "forget" to make it into the books.

A have also run into one occasion where a client made out a check to Fenris Consulting. My bank wouldn't accept it as I don;t have a business account with them. The client was nice enough to cut a new check.

Another aspect is liability. If I have a company then I could be sued and I might have to sell the company off to pay out. However I don't think they can touch my personal assets (or can they?). If I am just a independent contractor with no company then I assume I am totally liable. We'll ignore the issue of being a PE for now as I don't have to stamp prints currently.

Comments? Opinions? When did you get "large enough" to actually become incorporated or LLC?

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Sean Dotson, PE
RND Automation & Engineering
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I have worked quite a bit on the side for years and was self employed (contract) for about 5 years.

I am not an engineer so I don't know about the liability issue but I would think you could take care of that with a contract for the jobs.

The only reason I know of to incorporate would be for tax purposes and that usually falls around 120k, if I remember.

As far as 'oficially' being a business - You can open a checking account with any company name and make it look professional and cash checks made to your company. I probably wouldn't fool with that for less than $5k annual. You will need to fill out schedule C for profit / loss of a business but it's fairly easy.

You get some good tax breaks by running a business on the side - example - Your kids can earn up to 4,500 annually and not pay any taxes.

Free Advice: Keep good records, especially mileage.

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Oh Yeah!

Touch your personal assets. They sure can.
As a professional engineer, you are personallyliable. I dont think a company is going to help you duck the issue.
Over here some of the bigger consultancies have gone the Limited liability route. I am not sure how much this helps. after all, what are the assets of a consultancy. it is it's goodwill or client base and some pc's and s/ware.
I run what we call here a cc or closed corporation. It has to have its books done by an accountant every year. The accountant can usually save you more than his fee in taxes.
The good thing about working from home is that as soon as you leave your house to travel you can start claiming. The normal person cant claim cost going to an office.

One thing to avoid. Do Not Give free advice to other professionals. stay well away.

There was the case here of an architect that was on holiday and got asked by his host if he could remove the props out under a concrete slab. (this job had nothing to do with him). he said sure looks ok.(he is not an engineer) the thing collapsed and he was held liable.

Legally as soon as you give advice you are involved.
Now mechanical things dont fall as far or as hard as bridges or tall buildings.
The real big screwup for a mech eng would be to mis design an item and someone churns out 1000 of them. time to start running.

In Europe (probably in usa as well) all projects above a certain size have check engineers appointed and paid by the client.

In the end, you should always assess the maximun risk or cost. If it is too risky, just walk away.

and last. documentation. every job should be documented. diaries kept of phone calls etc. I keep most electronically.
drawings of parts should include in the notes: any design codes and loads assumed.

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Frans X LIebenberg
Structural Engineer
Cape Town, South Africa

I agree with good records. over here when you claim 5000 for entertainment of clients they might let it go but if they say prove it and you got no slips to show , you look very silly and they probably throw out all your other claims as well.

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Frans X LIebenberg
Structural Engineer
Cape Town, South Africa

Sean,
Arken Designs had operated with only a DBA Ficticious Business Name Statemement through the county. When you do this - you take that paper to the bank and they put a copy in your file - then you can deposit checks made out to the business name.

I just got a "Business License about 3 years ago when I read that the city was being more agressive with getting their $150/yr license fees.

That's all that I have to make me a "Business". No insurance Frans. Sorry, but...
1. I'm not a degreed Engineer.
2. I work from home.

talking to insurance companies through the years, they all said the same thing - those two items make me by definition a High Risk - thus insurance would be prohibitively expensive.

On the other hand, I have a colleague who is a PE and highly respected in the industry. He recently told me he has insurance at the rate of about $5K / yr - and he felt that it was a drop in the bucket when compared to his rates LOL

As for me, I don't design things where people can be injured or killed. No bridges, no more Roller Coasters.

As for the IRS, they don't care where the money comes from - just so you declare it - in your case - on a Schedule C.

_________________
Ron
http://www.arken.net Engineering and Design
http://www.arkenstudios.com Professional Photography

Like Arken Designs, B2 Design is a business in paper name only as a Sole Proprietorship.

The county requires an FBN (Ficticious Business name $20 for the first one, $3 for any additional at the same time. I actually have B2 Consulting as well but haven't used it.)
The only stipulation is that you publish the FBN in a local paper for 3 weeks straight and if no one complains you're in.

The bank takes a copy of the FBN paperwork, sets up your account and voila!!! You be biz'n.

I had the bank create the account as part of the rest of my accounts (family) and I can transfer money electronically between the accounts. Convenient.

As far as insurance goes, none is req'd unless your contract with someone requires that you have it. In my case, ADSK does require $1M liability coverage from their consultants. This is actually not too expensive - few hundred / yr.

I find the biggest irritation is the quarterly fed tax payments. Esp. if I haven't been paid by people or there's a deadbeat. It's really hard to send money you never received. (Going through that now, and with taxes too.)

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Bill Bogan
B2 Design
http://www.b2-design.biz
I'm thinkin' about it....

Actually that is not true in the US. As a PE my company (if I am an employer) takes liability. I cannot be persoanlly sued for anything if I am working as a direct report of my company.

Now if I own my own business and sign things with my PE stamp then yes I can. However the gray area is things that don;t need to be stamped.

Europe is much more agressive in this aspect.

_________________
Sean Dotson, PE
RND Automation & Engineering
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Sean,

I don't know about Florida but in my state it basically cost me about $200 to get set up as a registered business.

As for inc or LLC, go for the LLC, I was told by my attorney and an accountant that at this point in time they provide the same benefits for small business, but the LLC has less paperwork.

As for liability, I guess it depends what you plan on doing. Are you going into the design part of it? Are you providing support to a company, or completely designing for them?

I met with an attorney and an accountant for 1/2 hour free consultation each, before I made my final decision.

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Chris A

I pay provisional tax. You pay in twice per year. the first one in august and the second one in feb (at end of financial year) this is based on you previous year's income. so if you had a very good year and now you are getting little in it could be a problem. it gets sorted once the tax gets calculated, as the provisional amounts are estimates.
My books get done about one year late, so this gives you a bit of leeway to push invoices in to the next year if beneficial.
My accountant draws up the books based on money deposited into my cheque account. One thing I dont do is pay tax on invoices sent out but not recieved.

_________________
Frans X LIebenberg
Structural Engineer
Cape Town, South Africa

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Ron
http://www.arken.net Engineering and Design
http://www.arkenstudios.com Professional Photography

Sweet. Thanks for all the info guys. I like this category. Good idea Ron...

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Sean Dotson, PE
RND Automation & Engineering
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Just reading this old thread and wanted to throw in my 2 cents about being a PE.

In Canada, we have similar rules. If you were working for a company and there was a liability issue it would be your company that would get sued. I'm sure you would be named in it, but a law suit like that usually follows who has the deepest pockets.

However, working for a company would not protect you from disciplinary action from your local regulatory body (i.e. Association of Professional Engineers and Geoscientists of Manitoba). As a self-governing profession they are obligated to discipline the professional responsible.

Also, things don't necessarily have to be stamped to make you liable.

Paul

Thanks Paul. In the US the company is the first liable party. If as a PE I do not stamp anything I cannot be held accountable as an engineer. Now, this also being the US they can sue me for not doing a good job but they'd be hard pressed to win a judgment against me personally unless I was reckless. Hence the LLC.

_________________
Sean Dotson, PE
RND Automation & Engineering
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This is one of those gray areas up here. In my experience if you work for a manufacturing firm you probably don't stamp anything and there are probably a lot of "designers" at the firm who aren't PEs. To the letter of the law, as long as they are supervised by a PE then its OK (of course this doesn't mean a non PE can't be a good designer - I know many who are). However, practicing engineering without being a PE is illegal (technically) but regulatory bodies do not have the resources to go after people. They also rely on complaints, which they almost never receive (but it does happen).

In Canada, regulatory bodies are considering getting rid of the seal. Your initials or signature is binding already and the stamp is sort of archaic. Other professions don't have a stamp for legal documents, they just sign them.

Paul

over here things work more or less the same.

the most extreme case I heard of was an architect (note not an engineer) who was asked if the props under a concrete slab could be removed. he said, I dunno, looks ok , sure thake em out. The slab collapsed and he was held liable ,even if he had nothing to do with the job.

So the lesson is If YOU OPEN YOUR mouth about a job you can be held liable.

The other side of the coin is public safety. If you drive past a site and you can see that something is clearly dangerous to human life. what do you do.?? You approach the professional in charge and ask if x,y, or z is safe enough, but you do not give instructions.

_________________
Frans X LIebenberg
Structural Engineer
Cape Town, South Africa