Took my attorney's and CPA's advice.
An LLC took care of that problem for me.
OD
Actually the only way to avoid paying both sides of Social Security is to file as an subchapter S corporation.
You can't avoid all of the Social Security because you have to draw a paycheck and be paid a reasonable wage for all actual work performed. those paychecks have to have Social Security witheld just like any employer and since you own the company you are in fact paying both halves of the Social Security for those wages.
The savings come in when your business makes a profit(after it pays your wages), that profit flows in to your personal income as unearned income, with the earned income portion being reported on form W2 just like any other job.
If you DO NOT file under subchapter S then all income from the business flows into your personal income as earned income and you will pay both halves of Social Security on it.
An LLC is a state function, not a federal function, so it has no bearing on your federal tax status. A LLC is meant to provide protection of the LLC owners (members), from liabilities incurred by the LLC, whereas a sole proprietorship or a partnership offers no such protection. Forming an LLC also offers things like registration of business name, etc... under the laws governing corporations in the state where the LLC is formed.
I've been through this for a decade and a half. As my business grew I was first forced to change my accounting method from "cash" to "accural", then I decided to change my federal tax status to subchaper S to avoid Social Security on business profits. My wife and I now draw regular paychecks and have done so for years. Profits are distributed as well and are accounted for separately.
You are absolutely correct sir. I should have been more specific.
We are a sub S Corp.
Dumped the SET I was saddled with as a sole proprietorship, as well as the benefits you mentioned above.
Thanks for the clarification.
(That's why I do what I do, and leave the CPA stuff to the CPA's.
OD
An LLC is a state function, not a federal function, so it has no bearing on your federal tax status. .
An LLC does have bearing on federal tax status. Here are the basic rules.
Depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC’s owner’s tax return (a “disregarded entity”). Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it files Form 8832 and affirmatively elects to be treated as a corporation. And an LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes), unless it files Form 8832 and affirmatively elects to be treated as a corporation.
An LLC that does not want to accept its default federal tax classification, or that wishes to change its classification, uses Form 8832, Entity Classification Election, to elect how it will be classified for federal tax purposes. Generally, an election specifying an LLC’s classification cannot take effect more than 75 days prior to the date the election is filed, nor can it take effect later than 12 months after the date the election is filed.
The keypoint is that every situation is slightly different as every state has different rules and the method in which you handle the setup of the entity will impact your federal tax filing. So, get expert assistance, especially at the time you start the business entity.
I've seen or known of so many people over the years adversely impacted because they filed one form a few days late, a form such as 8832. I've seen people thinking they'd be treated as an S-Corporation and finding the paperwork wasn't filed and they were a C-Corporation so had both Corporate taxes and personal taxes involved.
Then the complexity extends to state income taxes, unemployment taxes, requirements for workers' compensation coverage, legal rights to conduct business in the state and treatment as a foreign entity.
Another issue the others mentioned is the payment of salary to oneself within your Corporation. You must pay a "reasonable amount" as salary. Now determining a reasonable amount isn't as easily done as said. However, if you have a profitable corporation whose revenues are a result of your personal work and you fail to pay salary and subject part of the income to payroll taxes, then the IRS will often determine it is 100% subject to payroll taxes, that essentially you're just self employed.
The issue of what is "reasonable" pay is very relevant. What we do is log 40 hours per week. The pay we receive is in what we feel is a reasonable range if you were to write out the specific job duties of what we do. We might have erred on the high side even.
In order to dispute that the IRS would have to show that our wages were not reasonable. That is a fight they probably would not waste much time on. Where they would get involved is if we did not log regular work weeks of hours.
We enjoy working while traveling, real estate income does not care where we are
The initial question was how to work while" Cruising."
A std white collar job , using the internet will require far more connectivity than most boats can obtain underway.
Is cruising is being tied to a dock for months , moving once or twice a year?
After living aboard for a couple of decades , which required a dock to go to work from,
I consider a day at the dock NOT to be Cruising , just house boating.
While I'd agree if that dock remains the same one, if it's a different dock every two or three days, then I'd consider that cruising.
Would you consider this cruising?
Day 1-Fort Lauderdale to Daytona Beach 12 hours.
Day 2-Daytona Beach
Day 3-Daytona to Fernandina. 7 hours.
Day 4-Fernandina
Day 5-Fernandina to Savannah 9 hours
Day 6-Savannah
Day 7-Savannah
Day 8-Savannah to Hilton Head 3 hours
Day 9-Hilton Head
Day 10-Hilton Head to Charleston 6 hours
Day 11-Charleston
Day 12-Charleston
Day 13-Charleston to Myrtle Beach 9 hours
Day 14-Myrtle Beach
Day 15-Myrtle Beach to Beaufort, NC 13 hours
Day 16-Beaufort
Day 17-Beaufort to Hampton 14 hours
Day 18-Hampton
Day 19-Hampton to Washington 11 hours
Day 20-Washington
Day 21-Washington
Day 22-Washington
Day 23-Washington to Cape Charles 13 hours
Day 24-Cape Charles
Day 25-Cape Charles to Annapolis 11 hours
Day 26-Annapolis
Day 27-Annapolis
Day 28-Annapolis
Day 29-Annapolis to Baltimore 3 hours
Day 30-Baltimore
Do you consider that 30 days of cruising or 12 days of cruising and 18 of houseboating?
My wife would approve of this schedule. I'm taking notes...
Kevin,
Props to you for formulating and executing a well thought out retirement plan. It's not easy to do.
I have struggled in my transition from full employment to full retirement. My first try I became very bored, and after two years I gave up and started the used car lot I have now. I have a good manager and only work 10-15 hours a week and can leave for fairly long periods, but it's still always on my mind. I plan to sell the lot to the manager in 3-4 years and try full retirement again.
I'm going to be a bit contrarian here. I understand the appeal of running a business part-time while doing something else, but that is not a "best practice" for success.
So then there are the traditional white / blue collar jobs for wages - not much to add there.
Then there's the portable trade - lots of options, as others have said look at the sail community for ideas.
Which brings us to the "work from home" professional world. I happened to read a great article on this a couple of days ago: How to Transition to Working From Home
I suggest anyone thinking of this type of work read that piece (I'm actually friends with one of the people mentioned - that's why it showed up in my Newsle feed). And really think about bringing your A game while sitting on a boat.
The boat offices I've seen - spare staterooms on KKs, Hatterases, et cetera - I sure wouldn't want to sit in there for hours on end. With crummy connectivity. With distractions. Just to be on the boat.
My boat is 12 minutes from home. With solid wi-fi. And a couple blocks downtown Bellevue (Seattle's "Eastside"). I've tried numerous times to "work from boat" and it's been an unsatisfying experience. I can deal with it if I have one or two teleconferences in a day and maybe some email. But serious work requiring (for me) multiple monitors and high-speed remote connections? It's not pleasant boating OR working.
I'm going to be a bit contrarian here. I understand the appeal of running a business part-time while doing something else, but that is not a "best practice" for success.
So then there are the traditional white / blue collar jobs for wages - not much to add there.
Then there's the portable trade - lots of options, as others have said look at the sail community for ideas.
Which brings us to the "work from home" professional world. I happened to read a great article on this a couple of days ago: How to Transition to Working From Home
I suggest anyone thinking of this type of work read that piece (I'm actually friends with one of the people mentioned - that's why it showed up in my Newsle feed). And really think about bringing your A game while sitting on a boat.
The boat offices I've seen - spare staterooms on KKs, Hatterases, et cetera - I sure wouldn't want to sit in there for hours on end. With crummy connectivity. With distractions. Just to be on the boat.
My boat is 12 minutes from home. With solid wi-fi. And a couple blocks downtown Bellevue (Seattle's "Eastside"). I've tried numerous times to "work from boat" and it's been an unsatisfying experience. I can deal with it if I have one or two teleconferences in a day and maybe some email. But serious work requiring (for me) multiple monitors and high-speed remote connections? It's not pleasant boating OR working.
BandB own a business, it doesn't own them. Best practice for success is being accomplished by them. They make the necessary money for the lifestyle desired. Sure they could stay there and probably hammer out another 25-35% profits but so what? They are not into slavery.
2 eye opening books are "The E Myth" by Michael Gerber. Basically dispelling the notion that if you know widgetts, you can run a widgett business. Wrong.
"The 4 hour workweek" by Tim Ferris. Band B are living this scenario. They empower trusted, trained employees to run the majority of their business, while having management imput and direction. No micro management here.
Thanks for all of the great responses. From all of them it is easy to see that this is a very broad topic. My interest lies more in what to do while in retirement to make a few extra bucks here and there. I am not interested in starting a full time business or carrying that kind of responsibility. Just interested in jobs that can be picked up in various ports. My wife and I expect to cruise up and down the east coast spending a couple months at a time going from port to port. That could mean staying at one dock or anchorage for as long as a month or so, or as little as a day. Some interesting jobs that have come up in discussions outside this board are:
Backfill bartender - Usually a cash job and can make $200 or so a night. I like the thought of this as I am a people person. Not sure I want to close a bar down at 2am though.
Delivery captain - Really appeals to me as I can work on getting the necessary licensing and reputation, I love boating, and wife wants to work as mate. Would allow us to travel together and make a few bucks here and there.
I have IT skills but in the last 8 years have been in a functional managers role. I could figure out something in this field, however, not sure I want the responsibility of having to answer the call when the customer experiences issues of some sorts and needs immediate help.
You mention your experience in IT. What experience do you have in bartending and relevant to a delivery captain? I know currently you're on Lake Lanier with a gas powered Carver but didn't know if you have coastal experience with different boats or not.