When is it time to form an LLC?

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MyOwnDemon

MyOwnDemon

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Jan 28, 2007
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I was wondering - to those of you guys making a few grand a week or more online, when did you get an LLC for your online empire/company?

Right now, I'm having some success in a few areas online and the money is good, but I don't know if it's time to form an LLC, or even form one at all. I'd probably be stupid to be pushing this money through my own SSN (like I'm doing now), as I'm going to be paying taxes out the ass next april, whereas if I was pushing it through an LLC, I'd get some tax breaks, right?

But, then what are the downsides and benefits to forming an LLC? If all my income comes from this LLC and I file through that, how do I file personal taxes? Do I have to put myself on my own LLC's payroll?

Sorry for the mass amount of questions, but the legal world is a totally new world for me, so any comments and advice would be appreciated. Thanks. :)
 


Um, you're thinking about it in the wrong way. You should form a corporation the minute you decide you're thinking about making money online. It doesn't matter if you make a dime or not. If you do, more power to you. If you don't, there's lots of creative deductions you can come up with to lessen your personal tax burden.

Essentially everything you do can become an expense. Driving, mileage, lunches, dinners, etc.

Also, I would look into different forms of corps besides LLC. LLC is very easy to manage from an administrative perspective, however forming an S-Corp, while it requires a little more work on your end actually can save you money.

Ask if you want to know more, on top of this internet thang I'm also a financial advisor.
 
I disagree with aim that you have to "form a corporation the minute you decide..." That's not really true.

I've done sole prop, as well as been involved in LLCs, S-Corps, and Inc.'s. You can declare yourself a sole-prop with a few easy steps: register a business name (a Fictitious Name Statement), then submit it to your local newspaper for publishing, then register your sole prop with your city of operation. At that point, you can open your own bank account under the business name.

The reality is that you want to form a business when you begin assuming liabilities. By liabilities, I mean: Does anyone ever come over to your home for business reasons? That's a liability. As a sole prop, you're completely exposed. If someone trips and breaks their ankle, you are liable for everything with all your personal assets. This REALLY becomes a big deal once you start hiring people. If people are acting as an agent of your business (in some instances even as an independent contractor) you will want to setup some sort of liability protection between the business and your personal assets.

The real downsides of forming a business usually involve (a) the setup fees and (b) annual fees to maintain your business. Depending on the business, it could take from $500-$5000 of documents and fees to get established, not to mention whatever CPA or lawyers fees you might incur during the process.

For the time being, if it's just you, you're not hiring, and you're not making more than $80k a year, you're probably just fine being your own sole prop.
 
Unless A) You're socking away a shit load of money that you want to protect in case anything ever happens. Or B) You're doing something that you think might get you sued Or C) You're taking on ANY business debt... I would hold off until you can easily afford to pay an attorney to do it for you without it taking out too much of your time.

But then again, really freaky shit could happen and you might want to minimize your risk now...

I had an offline business that was doing really well until our parking lot got shot up (we were in a real nice part of town in an upscale shopping center) and no one came back for at least 6 months because of what happened. We lost everything and had to file personal bankruptcy because we originally decided to wait on an LLC.
 
whereas if I was pushing it through an LLC, I'd get some tax breaks, right?
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Not true.

Forming a LLC in and of itself gives you nothing more than a DBA and state-decided :Limited Liability". Basically, in most states, you can only be sued for your COMPANY's income, YOUR assets are untouchable.

The only possible benefit would be keeping yourself out of a higher bracket by pushing money through an EIN and a SSN. Even then, it's marginal in most cases.

Jason
 
Basically, if you're making more than about $75k a year, call up your local SBA (Small Business Administration) and see if you can get a free or almost-free consultation on your options.

Again, the biggest issue right off the bat isn't taxes - even as a sole prop or a self-employed individual you can write off business expenses (to an extent). It mostly has to do with liability, and really only matters once you decide that you want to grow out of your home to a place of business and/or hire people.
 
Form an S-Corp, you take profit distributions and aren't taxed in certain areas such as payroll tax, for California at least. Also if you form a corp you can expense things such as gas, car payments, meals, strip club, etc...
 
DaveEMG probably has the best advice in this thread so far.

Corporations are meant for legal liability reasons. When acting within the law, the tax savings are negligible compared to a sole propietorship.

Because small corporations are audited at a much lower rate than self-employed individuals, they're usually able to get away with a lot more "grey area" stuff.

I recommend asking an accountant for advice regarding your particular scenario. He/she will give you much more qualified advice than what's mentioned here. You're going to need one to do your corp/personal taxes if you do form a corp or LLC.

A lawyer will charge $1500-$2000 to form a corporation for you. You can get the exact same service (minus the personal interaction) from companies such as LegalZoom.com and AccountStreet.com for 1/3 the price.
 
aim said:
Um, you're thinking about it in the wrong way. You should form a corporation the minute you decide you're thinking about making money online. It doesn't matter if you make a dime or not. If you do, more power to you. If you don't, there's lots of creative deductions you can come up with to lessen your personal tax burden.

Essentially everything you do can become an expense. Driving, mileage, lunches, dinners, etc.

Also, I would look into different forms of corps besides LLC. LLC is very easy to manage from an administrative perspective, however forming an S-Corp, while it requires a little more work on your end actually can save you money.

Ask if you want to know more, on top of this internet thang I'm also a financial advisor.
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Actually I am in accounting and also have my own LLC and you cannot simply deduct anything without solid proof that your expense was directly correlated to your business. Things like mileage must have something like a receipt for a piece of computer hardware/software or even a receipt from a trade seminar. Even then we are only talking about 48.5 cents per mile driven. You cant deduct gas because it is an indirect expense because you dont normally use a personal vehicle soley for business purposes. Meals and dinners are not fully deductible either it depends on how much you make and what happend at the meals too.

Dont get me wrong though if you have enough expenses that are legitimate then by all means a corporation can help reduce your personal expenses by allowing you to deduct certain things from you income. My advice would be to call any accountant and give them an idea of your figures on your cash flows statements. Then they will be able to give you an idea if it is worth a try before you spend the cash.
 
Someone said:
DaveEMG probably has the best advice in this thread so far.

Corporations are meant for legal liability reasons. When acting within the law, the tax savings are negligible compared to a sole propietorship.

Because small corporations are audited at a much lower rate than self-employed individuals, they're usually able to get away with a lot more "grey area" stuff.

I recommend asking an accountant for advice regarding your particular scenario. He/she will give you much more qualified advice than what's mentioned here. You're going to need one to do your corp/personal taxes if you do form a corp or LLC.

A lawyer will charge $1500-$2000 to form a corporation for you. You can get the exact same service (minus the personal interaction) from companies such as LegalZoom.com and AccountStreet.com for 1/3 the price.
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Actually the papers can be filed by any individual and any business lawyer should be able to file the necessary documents for under $300. I got it done for $200.
 
thesoup said:
Dont get me wrong though if you have enough expenses that are legitimate then by all means a corporation can help reduce your personal expenses by allowing you to deduct certain things from you income.
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You can do that as a sole prop as well, as long as you can prove that you're not simply involved in a "hobby business".
 
I live in De. so I'm already in one of the most affordable (and easy) states to form a LLC in. Total cost is about 120.

For those of you outside of Delaware i'd recommend getting a resident agent (actually I think you have to) it costs less than 100 per year. Nevada is another 'corp friendly' state.

That gives you an office phone number, fax, and mail delivery service in this state. It's just all forwarded to you wherever you are.

I'm not going into tax issues - a forum isn't the best place for that and your just going to get conflicting advice but you should talk to a financial lawyer or a good accountant.

At least read up a bit to see what you "THINK" makes sense for you - save a little billing time with the accountant and be able to show him/her why you think it makes sense:

http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P12_4000

Hell, you can form a llc or a corp in the U.S. even if you live overseas for less than a couple hundred bucks per year. With all the places that filter out certain countries It just makes sense in some cases.
 
i was thinking about it, i had a company that wouldnt work with me because i didnt have a company name. They were having a hard time understanding that it was just me, no employees
 
^^^

You can register a company name for under $100 (County DBA and Newspaper printing). With that county DBA form received, you can open a business checking account. No need to go the whole shabang- you're now a sole prop operating with a DBA.
 
Don't know about the states but in Ireland limited companies are a complete waste of time. It's just more hassle. You can still claim expenses as a sole trader. With a limited company, there's the notion of limited liability but in Ireland that's kinda gone, they can sue you as a director and get their money. The corporation tax in Ireland is low at 12.5% but then when you take your money out as an individual you're taxed again! Pointless for one man operations which most internet marketers are.
 
georgiecas1y said:
Don't know about the states but in Ireland limited companies are a complete waste of time. It's just more hassle. You can still claim expenses as a sole trader. With a limited company, there's the notion of limited liability but in Ireland that's kinda gone, they can sue you as a director and get their money. The corporation tax in Ireland is low at 12.5% but then when you take your money out as an individual you're taxed again! Pointless for one man operations which most internet marketers are.
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That's one of the few cool things in the U.S. with the LLC's. They do file a tax return but aren't liable. All income routes through to the partners who pay taxes similar to what they would pay a sole proprietor.

Makes sense if your part of a more than one man team - not sure if it would be worth it if you were a one man show.
 
Well, 12.5% is really low, lowest in Europe I think. The EU are trying to standarise the rate which would fuck Ireland up. US multi nationals employ tonnes of people here.
 
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