Quit spending money on services you don't need. to. First, find yourself a CPA who can assist you with your past tax issues. Second, talk with the CPA about the advantages and disadvantages of being a sole proprietor, forming an LLC, or forming some form of a corporation.
When I was with a larger appraisal group, it operated as a corporation, and I operated and was paid as a sole proprietor. Since that corporation eventually shrank down to just two appraisers and the owner moved 60 miles away, I went independent and formed an LLC. Your situation and California laws may vary, but my experience is the LLC is pretty much the way to go. As mentioned earlier, if you have many assets or are in fear of being sued, increase your E&O and purchase an umbrella insurance policy, which will cover most anything over and above what your E&O and other liability insurance policies will cover.
For me, I bill through the LLC, and the money goes into my LLC bank account. I keep my business-related expenses separate from my personal expenses. When it comes to filing my Federal & State taxes, I provide my CPA with my personal income from various community boards, dividends, stock sales, etc., along with my personal expenses such as property taxes, health insurance, etc. I then give him a total of my appraisal-related income for the year, which I can easily calculate because that is the only money deposited into my LLC bank account. So, I don't worry about collecting and reporting any 1099 information. I then provide all appraisal-related expenses, including mileage, supplies, postage, internet, phone, etc. I work from home and do not deduct anything for office space. My tax filings also include two rental buildings, which are accounted for separately, and my wife's retail store, which she operates as a sole proprietor. Because everything flows through to our personal return, the only filings I have to make are quarterly estimates to the Feds & State. The estimates are based on the previous years' net earnings.
My CPA has everything computerized, so I enter all the pertinent information into the forms, then his program will enter the information into the appropriate tax forms, including calculating depreciation, mileage deductions, any tax obligation, and next year's required quarterly payments. My most recent bill for tax preparation was $600.
For income reporting purposes, the LLC's net income is treated as our personal income. Obviously, there are many things you could run through an LLC, like a vehicle lease vs. deducting mileage. If you lease a vehicle in your business name, all related expenses such as lease payments, insurance, gas, maintenance, car washes, etc. are directly deductible. You could also purchase a vehicle in your LLC's name, but then you have to deal with depreciation, capital gains, etc., when you sell, etc. Leasing works very well, especially if you have a second vehicle to drive, or you drive a minimal number of personal miles. The personal mileage will be input as additional income, but the hit is fairly minor compared to the cost of operating a vehicle.
One thing to keep in mind: sole proprietor income, LLC income, and "S" Corporation income all end up as income that is reported on your personal tax return. Now, if you form a regular Corporation, only the income paid to you is reported on your personal return, but then you will have to file a separate Corporate return and pay tax on any profit remaining on the Corporation's books at the end of the year. One of the loopholes that may still be available is to pay yourself a dividend equal to the corporation's estimated profits. After paying whatever tax is due on the dividend, you can then either treat it as income or loan it back to the corporation at a market interest rate.
There are a number of options a knowledgeable CPA can assist you with. I will tell you there are a lot of people on the internet who will claim that, for a not-so-small fee, they can help you form an LLC. Don't fall for it, at least in Michigan, you can go directly to a State website and form your own LLC for just the cost of filing. Takes less than five minutes. Forming an "S" Corporation or a traditional Corporation is slightly more complicated.
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