USA - Converting from LLC to INC - Advantages

[Rx_]

Recent Experience of Converting from LLC to INC
History:
My quest started with my research and plan to write an e-book for a small business using the Innovation Tax Credit.
This regulation is more commonly known as the R&D Tax Credit. About six years ago it went through major changes. Due to the rush job, it had no public comment and the documentation was basically an append on existing regulations with many contidictions.
However, very large companies take advantage of this and receive about $8 x10 9 ($8 billion) in refunds each year, leaving an additional $10 Billion unclaimed.
I was granted appointments with the author of this bill who practices law and helps the larger companies acquire the tax credit.
It is my plan to apply this to my very small programming consulting business and possibly obtain a $5,000 per year tax credit over 2014 and the next several years.

Converting LLC to Inc
In this pursuit, I found a financial consultant who understood the form and was interestied in helping me file it for a small business. However, he showed me why it would only apply to a Inc, not to a LLC.
A programmer friend of mine who made in excess of $150 and hour had shared with me his conversion experience. He spent roughly $12,000.00 to do this. Granted, the company has training videos and fantastic hands-on assistance. I had the belief it was a little steep for me.
Since I had a lot of background experience (previous officer for taking a company public plus board member in non-profits) the financial consultant was able to convert me for around $1,700.00 including filing fees for the State and Federal.

Tax Implications
We converted last December 2014. This made my 2014 filings retro-active for the entire year. My accounting was set up for an LLC. Many things are not as 'deductable' in a LLC as the Inc. I probably spent 200 hours to goe thorugh every invoice and expence since the Jan 1 to my filing on April 1. My wife and son are officers. There are no employees except short-term contracters.
My (plus wife) income in 2014 was about 20% higer than 2013. My all-in tax payments were around $30,000 less. Around $22,000 went into the company IRA.
The accounting for 2015 will be much more simple since it is re-designed for the Inc.

The next step is to use the Innovation Tax Credit. Developing orginal software that improves business (if it is not for retail sale) should apply.
A Tax Credit is not just a refund. It is basically a voucher to pay for the next years tax payments. With a target of $5,000 a year, it isn't retirement funding. But, it can help fund my next innovation.

Had I realized the real savings, the $12,000 fee would have been recaptured the first year. My suggestion is: If your consulting company (plus wife's income) brings in $100,000 or more a year, taking the time to convert to an Inc could be your 2nd work-at-home job. For the hours I put in working on my accounting, corporate bylaws, meeting minutes... at home, it is a fairly great return on investment.

 

[Rx_]

For USA business:
Just wanted to update the status of a small programming business applying for Innovation Tax Credits. For FY 2014 my INC will receive around $3,100.00 for every $100,000.00 of income.
If you are a consultant, this might apply to you. Or, if you are an employee, this might be usefull to your employeer to understand your efforts have additional advantages.
There are Tax Deductions and then there are Tax Credits. A Tax Credit is like a check to apply for future tax owed. Congress set up an Innovation Tax Credit program. Basically, if a Inc (LLC don't apply) creates a process or innovation that makes a US company more More Efficient, part of the funding can be used as a Tax Credit.
The law was written for large companies like Microsoft, HP, Oil Companies, and the like. In the past, it was designed for white lab coat R&D. However it was modified and expanded to create "shovel-ready-jobs".
The problem was that this change was pushed through so fast, the language was for very expensive lawyers to figure out.
As a small business and a nerd for reading regulatory law, I contacted the people who were on the law's oversite. They indicated that the representatives truly wanted small business to use the Innovation Tax Credit. Not to be surprised, our lawmakers don't really understand small business. There are around $17 Billion of unused funds earmarked for this each year after the mega-corporations get their share.
About 2 1/2 years ago, I started to contact the mega-corporations tax lawers and beg for free time on how to figure out how a small business could apply for this. They helped guide me to more resources and hundreds of pages of reading.
Then, I ran a national advertisement with specific requirements to find CPA's that could assist and even partner with me for this effort. There were three qualified respondents nationally. I also paid a PHD to take my readings and notes to create a research paper to formalize the process.

I just succussfully completed this and filed. Now I am setting up a new company to assist other small business.

In a nutshell, the efforts earmarked for Innovation are subject to receiving Tax Credits. For example:
HP spent money to re-design the more efficient automation of the Desktop assembly line. The money for the design qualifies. The production of products itself does not qualify.
My company creates internal one-of-a-kind applications (Access is included) to manage data in a Regulatory related operatioins. It basically automates Regulatory process more efficiently. My company receive tax credit for part of these innovative (invention) efforts. The company paying for the innovations receive other parts of the innovative (invention) credits.
Of interest, an existing company might be able to re-file past returns once realizing this for three to five past years.

Oh, well. Enough about the Innovation Tax Credit. I am successfully filing for it this week. My goal is to finish a full service marketing, CPA, education... enterprise to offer it to others in the coming months.