Home IT Business to LLC for IT Merge? What to do?

[kmbunz1]

Here is my scenario: I have a home based IT business and I am looking to move this to a LLC.

Here is my current work situation:
I work full time at a non-profit agency (100 employees), I also work part time at another non-profit agency (15 employees). They work together so I am able to balance the two jobs. I am the only IT administrator that works for them.

In my spare time, I created my own home based IT Company 4 years ago and I do work on the side through that.
Recently, another non-profit agency was looking to cut their current IT budget and hire myself to manage them. They were thinking of creating a IT department with the other 2 agencies above that I work for and I would be in charge of it. The problem is they don’t quite know how this would work on how I would be paid and how it would save them money. They also believe that it is too much for me to handle. I mentioned that I could hire part time or full time employees to help with daily operations, while myself would focus on the bigger projects, hence taking more of the workload off of me.

My thought was that I can expand my home based IT business to a LLC and hire my own employees and all 3 agencies can pay me as a contractor instead of being hired under them.

My questions are:
1.) Does it make sense to expand my home based business to a LLC, and have the 3 agencies pay me as a contractor instead?
2.) Would this save the 3 agencies money?
3.) Would I benefit from this?
4.) What would it cost to hire a part time employee? (Estimate for taxes, insurance, etc.)
4.) If so, what are the next steps I would have to do to get this going?
My goal in life is to be my own boss and expand my business and this seems like the best opportunity to do it. I just need to show them that this move can benefit everyone involved.

Thanks in advance for any advice!

[MyITGuy]

Here is my scenario: I have a home based IT business and I am looking to move this to a LLC.
I'd recommend speaking with an accountant first to determine if an LLC or S/C Corp would be best for you. Personally, I went with an S-Corp,



I work full time at a non-profit agency (100 employees), I also work part time at another non-profit agency (15 employees).

My questions are:
1.) Does it make sense to expand my home based business to a LLC, and have the 3 agencies pay me as a contractor instead?
2.) Would this save the 3 agencies money?
3.) Would I benefit from this?
4.) What would it cost to hire a part time employee? (Estimate for taxes, insurance, etc.)
5.) If so, what are the next steps I would have to do to get this going?


1 - Absolutely.
2 - Depends on your pricing structure. Personally, the clients I serve almost always save money, and have more resources available to them than hiring a single employee. I.E. Look at pricing your support offerings on a per machine or per user model for the lower volume/user clients and/or offering a block of hours per month for the larger clients.
3 - increased income, flexibility to add additional employees as needed to support your growth.
4 - This all depends on what you want to pay and what taxes apply in your area. Best way to get a good understanding on this would to use Hourly Paycheck Calculator | ADP (http://www.adp.com/tools-and-resources/calculators-and-tools/payroll-calculators/hourly-paycheck-calculator.aspx). You would then have to pay an equal amount of the employee taxes (I.E. If the employee gets $150 deducted from their paycheck, then you would pay $150)...plus account up to 3% for unemployment taxes you pay to the state.
5 - Talk with an accountant to see what the best course of action for your particular position (LLC, S/C Corp or etc), have them file the necessary paperwork (Obtaining an EIN from the IRS, Registering with the state for the LLC/Corp, along with permits from the county and city). Then talk with a lawyer to draft up contracts/agreements for your clients that protect both of your interests, then sell to your clients.
Or, put me in contact with these agencies and I'll sell them my services and hire you to care for them and pay you a commission for the sale =P

[Business Attorney]

I think the answers from Jeff are good but I would expand on two:

First, an LLC and a S corp are not mutually exclusive. An LLC is a statutory entity with specific characteristics, as is a corporation. An S corporation is a tax treatment, not a specific type of corporation. Just as a qualifying corporation may elect to be treated as an S corp, so can a qualifying LLC.

Second, while talking to an accountant about entity selection is a good idea from a tax perspective, very few accountants I have met really understand the pros and cons of an LLC as a legal entity (as opposed to the tax considerations). Also, when they form entities of any type, they usually only fill in the blanks on a state-provided form and accept the standard treatment of the law. In many cases, that is not the best solution. I suggest that you talk to your attorney BEFORE you form the entity, not after the accountant has "file[d] the necessary paperwork."

[kmbunz1]

Great! So no matter what, it looks like it is a good idea, for myself and the agencies involved, to go the route of hiring me with my business. The next step for me would be to talk with an attorney before I make any decisions on changing my business to a corp or llc.

The 3 agencies are meeting next week to discuss this but my full time agency seems hesitant. They feel I am stretched to my limit already and this would take me away even more. They also didn't know how they would pay me and were worried on costs. They do not know I have a side business and have not brought it to their attention as a possibility yet. I am trying to get all of the details first and want to figure out if this is a good decision for all parties involved.

My other questions:
1.) By taking me off their payroll as a full time employee, with benefits, 401k, etc. And hiring as a contract, does that help them save money?
2.) If, when, I become a corp or llc, can I do something with my current 401(k)?
3.) What is a typical cost of insurance for starting a business with employees? (Myself plus 5 part-time employees)

Sorry if my questions are basic, I am just curious on all aspects of this and get knowledge of the costs and what goes into a business. Are there any good resources out there?

Thanks guys for your help, much appreciated!

[Business Attorney]

1) Whether it saves them money depends on what you are charging them and what their total payroll costs were for you.
2) Yes, but you should get professional advice. You can always roll the balance in your current 401(k) plan into an IRA but there may be better choices for you.
3) What types of insurance do you plan to carry? You will probably want a general liability policy and you will need workers compensation insurance. Most small tech businesses do not carry errors and omissions insurance but that is another possibility. There are other types of insurance such as fidelity bonds. Then, of course, there is company-provided insurance such as medical, dental, vision, disability and life insurance. An insurance agent can go over the alternatives with you.

[MyITGuy]

My other questions:
1.) By taking me off their payroll as a full time employee, with benefits, 401k, etc. And hiring as a contract, does that help them save money?
2.) If, when, I become a corp or llc, can I do something with my current 401(k)?
3.) What is a typical cost of insurance for starting a business with employees? (Myself plus 5 part-time employees)


1 - Again, this depends on your pricing structure. As an example, if they are currently paying you $10/hr for an approximate total of $2,250 per month including taxes, insurance and 401K, then they would not be saving money if you wanted to charge them anything more than $22 per machine supported (As a note, just to monitor a workstation and ensure they are up to date runs about $40 a workstation in my area...actual support is much more). On the other hand, if you charged them.

If you want to share what your approximate wages are now and what expectations you may have set or what your clients may come to expect I may be able to share some ideas with you.

2 - It would be best to speak with your accountant on this. Starting out as an owner/operator there aren't many 401K options available to you. Once you get past 5 employees it might make sense to enroll in something.
3 - The last time I renewed my general liability and Professional Liability Policies I paid approximately $1500 for the year. But keep in mind that this price can fluctuate depending on how much coverage you need (I.E. 100K/300K would be cheaper than a 1M/3M policy).

[kmbunz1]

Thank you guys for the info! Very helpful!

Answering MyITGuy's questions above,
1.) At my full time employee job, I gross around 4000 / month, my part time is 3100. The third agency that is interested is a bigger agency than my 2 current ones, triple the size.

My thought was try to keep it simple to begin.
- Change my home base business to LLC or Corp. (Talk with Attorney)
- Talk with accountant/attorney for necessary paperwork, taxes, insurance, permits, etc.
- Hire 5 part time employees to begin. (Is this better than full time? Cost saving as opposed to 3 full time staff?)

As for what to charge them for my services, I have to keep in mind my costs for employees, insurance, taxes, etc. and make sure it is feasible for me and for them. I don't want to be loosing money. 8) Im trying to look at all the costs involved so I can see if this will work before I proceed.

2.) As for my 401(k), I believe it was mentioned in an earlier post that IRA's are available, which if that is the case, I would go that route to begin.
3.) Was your policy 1M/3M policy that you paid $1500 for the year? I would probably start with more of a lower one.