Captive to Independent. Can I Create my Own Entity?

Discussion in 'General Insurance Agent Discussions' started by MisterBill, Aug 6, 2017.

  1. MisterBill
    Offline

    MisterBill Member

    Posts:
    6
    Likes Received:
    0
    Hello everyone. I'm hoping to get some advice or direction. I'm leaving my captive company status after 18 months and looking forward to becoming an independent agent as soon as possible, 1 or 2 weeks.

    However, working on a 1099 basis will not be tax friendly. I would like to create my own business entity such as an LLC or C-Corp. I will be contracting with an IMO that I have a great feeling about.

    Does anyone have advice about the type of entity I should created or potential pitfalls to watch out for? My plan is to work as a business of 1 or 2 for the rest of the year but I do plan to recruit in 6-8 months, once I have my business model working well. Any guidance would be appreciated. Thank you.
     
  2. adjusterjack
    Online

    adjusterjack Well-Known Member

    Posts:
    297
    Likes Received:
    8
    State:
    Arizona
    The best advice anybody can give you is to consult an attorney and tax pro before you embark on this "business model."

    However, most people have the wrong idea about business "entities." So, I think you should answer the following question.

    Why do you think an LLC or C-Corp would be advantageous to you?

    Need to find out if you are laboring under the usual misconceptions.
     
  3. MisterBill
    Offline

    MisterBill Member

    Posts:
    6
    Likes Received:
    0
    Thank you for the response adjusterjack. I would definitely agree with you about consulting the professionals. A definite must. My biggest concerns are that my personal income tax would be higher than say an LLC or corporate tax would. Also, business write offs are more legitimate when I have an actual business. I could use a DBA but I believe there may be much stronger asset protection and liability protection through a business entity other than S Corp. I will admit that my theories come from a real estate background and not a life insurance business background. That's why I was hoping for some insight. I am not sure If there are any significant differences between the 2 industries such as regulations that may be required on the insurance side. Thank you.
     
  4. ktmorgan
    Offline

    ktmorgan Well-Known Member

    Posts:
    92
    Likes Received:
    0
    State:
     
    Go talk to someone about your specific plan. I'm sure if you surveyed 20 people you get 23 different answers.

    For instance, I use a a split tax structure with two multi-member LLC's, that way only 30% of my income is subject to Self-Emply tax & Medi Tax and the surcharge. 70% of my income by-passes that requirement, that 15.3% savings on 70% comes in quite handy. They both have their own EIN and they both file a tax returns.

    Then they both "fall" down to a FLP, L.L.L.P, in yet a 3rd tax-friendly domicile with a additional EIN and yet a 3rd tax return.

    I've never met anyone who does this exact same thing. But I'm mainly domiciled in high-tax state.

    So go see a professional. And word to the wise: interview several of them. You're going get many different answers. Only then will you have enough information to do your due diligence, then you can go back to someone to help you set up what best fits your own circumstance. I doubt you will my complexity.

    Remember, you should worry first and foremost about making enough money to justify any tax regimen you set up. I've seen countless people spend a ton of time on their "set up" only to never make enough money to justify their time and expense to do so.

    There maybe 2 or 3 well-known, public FMO's in this business that know what they're doing. Never trust a word from them. And watch your back. If they've already got you thinking "recruiting" I would run away ...now.



     
  5. scagnt83
    Offline

    scagnt83 Well-Known Member

    Posts:
    6,525
    Likes Received:
    27
    State:
    South Carolina
    If you feel that you need the asset protection. Set up an LLC. The main advantage of a SCorp is saving on Self Employment taxes. However, this is only advantageous if you make over a certain amount. Both entities will provide you with similar asset protection.

    The LLC can give you the best of both worlds. It allows you to choose SCorp taxation if you desire. So you get lower expenses of maintaining and setting up the business. But you also can get the tax advantages if you make enough to warrant that type of taxation.

    You can also just operate as a Sole Proprietor and choose a DBA name to file with the state. E&O insurance will cover most issues that could arise as long as you dont do anything illegal. (not legal advice, consult an attorney if its a huge worry)
     
  6. FLM2
    Offline

    FLM2 Well-Known Member

    Posts:
    3,238
    Likes Received:
    0
    State:
     
    Everyone's situation is different-I have a C Corporation because, among other things, it allows me to fully fund a solo 401K with a substantial employer contribution that flows fully tax free.

    You should discuss this with a tax advisor/CPA and determine what would work best for you.
     
  7. scagnt83
    Offline

    scagnt83 Well-Known Member

    Posts:
    6,525
    Likes Received:
    27
    State:
    South Carolina
    There is no difference in Non-Elective Deferral taxation or allowable percentages between a CCorp and an SCorp. You get the same tax treatment towards your 401k contributions in either one.

    You are referring to Matching Contributions and Profit Sharing Contributions. Basically, anything over the $18k 401k limit, up to the $54k DC Plan Limit, avoids FICA taxes. No different for a C or a Scorp. Both can make an employer match in the same amounts, and both can contribute up to 25% of profits.

    Now there might be other reasons related to your situation that would make the Ccorp makes sense. And they could be income related, which could affect your 401k contributions. But the avoidance of FICA on Non-Elective (employer) Contributions is the same for both entities.

    ----------

    The potential problem with a Ccorp is double taxation on profits. An Scorp can avoid this.

    Imo, a Ccorp is mainly useful if you need to keep assets within the business, or if you want a more complex setup between multiple shareholders.
     
    Last edited: Aug 7, 2017
  8. FLM2
    Offline

    FLM2 Well-Known Member

    Posts:
    3,238
    Likes Received:
    0
    State:
     
    As my post said, the 401K employer contribution was one of the benefits for me, there are others as well that will remain private.
     
  9. DHK
    Offline

    DHK Well-Known Member

    Posts:
    6,078
    Likes Received:
    19
    State:
    California
    The only asset/liability protection there may be, is for the actions of employees (agents) and if any employees should happen to sue you for employment-related charges. If you're looking for asset/liability protection from your actions as an agent, it doesn't exist. You're licensed for a reason.
     
  10. scagnt83
    Offline

    scagnt83 Well-Known Member

    Posts:
    6,525
    Likes Received:
    27
    State:
    South Carolina
    What my post said is that is not a benefit specific to a C Corp. An S Corp can do the exact same thing.
     

Share This Page