My wife is a portrait and wedding photographer (shameless plug under signature) and she currently operates her business as a sole proprietorship. For the first few years of the business, the money we lived off of was just whatever the business earned after expenses (plus some debt we would take on as needed). Now things have really taken off (and look even better in the future), and we can afford to give ourselves a budgeted income (i.e. salary), pay off that debt, and turn a real profit. In fact, things are going so well that we plan on buying a new small business this year and having me manage it until grows and earns enough to pay off the balance of the purchase price and install a salaried full-time manager. Then we rinse and repeat on additional small businesses and grow a portfolio. I have an idea on how to organize things, but I'm not sure of all the tax ramifications that might be involved. Hopefully, somebody here can provide some input. What I am thinking to do is this:
Set up a "administrative company" (owned solely by myself and my wife) that employs my wife, my self, and any additional employees for each of the businesses that we own. This should let us consolidate administrative costs and benefit programs. I would have that company lease individual employees time out to the operating businesses as needed. This company may also own the equipment for each of the operating companies and lease them back. Again, this would be to consolidate administrative and book-keeping matters and facilitate easier transfer of assets from one business to another as needed. I expect the administrative company to not turn much--if any--of a profit or loss itself. Mostly, it would just package wage and benefit costs (or break down equipment costs) and pass them off to the operating companies so that the books on the individual companies were individually clean and simple: Revenue - COGS - leases = profit. Now here's some questions:
1) Bluntly: is this organization scheme pointless or worse? 2) Should the "administrative company" specifically own or not own the operating businesses? (Obviously the photography business would no longer be a sole proprietorship at this point, either way) 3) Does the income from leasing employees and equipment to the operating businesses count as the kind of income that would signal a personal holding company tax? 4) Would there be a preferred type of business entity for this type of company? S-corp, C-corp or LLC? 5) Do you have any additional suggestions for someone who is trying to operate what will eventually be a handful of small business? So much information out there is about organizing ONE small or ONE medium sized business, not about optimizing the structure of several small businesses shared by one owner. Thank you so much, Andrew(and here's the shameless plug I mentioned: