October 9, 2020
What Is the Best Business Structure for a Trucking Company?
Disclaimer: While we are offering business advice, this blog is for general informational purposes only. Each person’s situation is different and a professional lawyer, tax accountant or business consultant should be consulted if you are thinking of starting your own company.
If you’re planning on starting a trucking company, whether as an independent owner operator or by running your own fleet, you have to have the right business foundation in place. There are four main types of business structures and choosing one can help or hurt your business:
- Sole-proprietorships
- Partnerships
- LLCs
- Corporations
We cover all this information in episode 2 of Haulin Assets, so make sure to check that out if you want to learn more.
First thing to note:
Are You Required To Create a Business Entity for a Trucking Company?
In many states you are actually not required to create a business entity for your trucking company. If you don’t create one, the state automatically considers your business a sole-proprietorship. Running as a sole-proprietorship means that you are the business entity, so there’s no separation between you and your business.
While this may work for some businesses, you should consider the advantages and disadvantages. Setting up a business entity for your company can take time and money, but it can save you a lot of headaches in the long run.
Why Choose To Register Under the State?
There are two main reasons businesses choose to spend the time and money to create a business entity for their trucking company with the state:
- Protect their personal assets
- Take advantage of specific tax savings
When you set up your business, the biggest advantage is that it’s entirely separate from your personal assets. So, if you’re considered a sole-proprietorship, your car, house, and even your truck will be part of the business.
But, if you set it up separately, the things you use for your business are considered separate from your personal assets.
This distinction is made even more clear if you have a business phone number separate from a personal phone number, a business credit card and a personal credit card, and other things like that where possible.
By separating it in this way, if your company gets in trouble, you are at a much lower risk of losing your personal assets that aren’t marked for business use.
What Is an LLC?
Most small trucking companies and independent owner operators choose to register as an LLC, which stands for Limited Liability Corporation. An LLC is like a corporation that separates your business assets from your personal property but it is much easier to manage than a corporation, especially for small businesses.
An LLC works like a mix between a sole-proprietorship and a corporation. It is required to have owners as members, which, unlike a corporation, may be hard to transfer. However, unlike a corporation, there aren’t as many rules to follow, which is covered briefly below.
To register as an LLC, you are required to obtain your business’s articles of organization, which is a document that details things like when you started your business, who the members are, what it will do, etc.
What’s the Difference Between a Business’s Legal Structure and Business’s Tax Structure?
The business structure is organized with your state while the tax structure is handled by the IRS on a federal level. When your business is set up, you have to register your tax structure under the IRS separately to get your Employer Identification Number (EIN).
While you register as an LLC under the state, the IRS does not recognize LLCs. For tax purposes, you may be considered a sole-proprietor, partnership, S-corporation, or C-corporation.
You still get all the benefits of protection under the LLC, but the tax process is different.
Many small trucking companies register under the IRS as an S-corporation. You have to file extra paperwork to register the business as such, and getting a professional can help you navigate this.
By choosing S-corporation status, you can save on FICA (Federal Insurance Contributions Act) taxes, often called payroll taxes, and avoid double taxation.
You can learn more about how that works in the show notes of episode 2 of Haulin Assets, where we use real examples of how much money you can save on taxes by spending a little more now.
Get the Support You Need To Start a Trucking Company
If you’re planning on getting your trucking authority, the first step is to register your business. From there, we can help take care of the rest, and do everything from get your trucking authority to registering under the Unified Carrier Registration.
If you haven’t registered yourself as a business yet, our coaches can help you get what you need to start your trucking company. We are always ready to recommend other professionals to make sure your business is set up for success.